Developing Entrepreneurship in The UNECE Region

United Nations Economic Commission for Europe
DEVELOPING
ENTREPRENEURSHIP
IN THE
UNECE REGION
Country experiences
in reducing barriers
to enterprise development
UNITED NATIONS
New York and Geneva, 2008
NOTE
The designations employed and the presentation of the material in this publication do not
imply the expression of any opinion whatsoever on the part of the Secretariat of the United
Nations concerning the legal status of any country, territory, city or area, or of its authorities,
or concerning the delimitation of its frontiers or boundaries.
ECE/CECI/6
Copyright © United Nations, 2008
All right reserved

Printed at United Nations, Geneva (Switzerland)
UNITED NATIONS
PUBLICATIONS
Sales No. E.08.II.E.18
ISBN: 978-92-1-116996-6
FOREWORD
At advanced stages of transition to a market economy, entrepreneurship and enterprise

development come to the forefront of the development agenda. With their new technologies
and innovative solutions, new enterprises strengthen economic competitiveness and
sustainability. They also enhance macroeconomic efficiency, as well as creating employment.
However, in countries with economies in transition (or “emerging market

economies”), both new and operational companies often face formidable administrative and
regulatory barriers to enterprise registration and operation. At the United Nations Economic
Commission for Europe, we identify and examine good practices in reducing or eliminating
such barriers and provide a platform for sharing the accumulated country experience. We also
advise member Governments on policy actions.
The current publication takes stock of the numerous barriers to enterprise development
and highlights the regulatory changes aimed at removing such obstacles in countries with
economies in transition. It assesses government policy in this area and summarizes the
recommendations emanating from the 2007 UNECE International Conference on Reducing
Barriers to Entrepreneurship and Encouraging Enterprise Development: Policy Options.
I hope that the publication will be of interest and of practical use to policymakers and
other stakeholders endeavouring to eliminate barriers to entrepreneurship and enterprise
development in the emerging market economies of the region.
Marek Belka
Executive Secretary
United Nations Economic Commission for Europe
ACKNOWLEDGEMENTS
This publication was prepared by the UNECE Secretariat in the context of the UNECE
Programme on Economic Cooperation and Integration. The secretariat would like to thank
interns Ms. Melissa Braybrooks and Mr. Timothy Devanney for their contribution to this
publication.
Developing Entrepreneurship in the UNECE Region v
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CONTENTS
Page
OVERVIEW .......................................................................................................................... vii

INTRODUCTION.................................................................................................................. xi
I. “ENTREPRENEURSHIP”: Definition, Economic Potential and Drivers ............... 1
II. MAJOR OBSTACLES TO ENTERPRISE DEVELOPMENT,..................................

AND GOVERNMENT ACTION TO REDUCE OR ELIMINATE THEM ............ 5
A. Reducing the Administrative Barriers ................................................................... 8

1. Establishment of enterprises.................................................................................. 8
2. Operational enterprises........................................................................................ 15
3. Recommendations by International Organizations and Government Action...... 17
B. Lowering Tax Rates and simplifying the Tax Administration............................. 22
1. Tax rates .............................................................................................................. 25
2. Number of tax payments ..................................................................................... 29
3. Time needed to comply with taxation requirements ........................................... 31
C. Securing Financing of Start-Ups and SMEs....................................................... 32
1. Banks................................................................................................................... 33
2. Leasing ................................................................................................................ 35
3. Microfinancing .................................................................................................... 36
D. Reducing Obstacles to SME Expansion Abroad.................................................. 37
E. Fighting Corruption .............................................................................................. 40
F. Raising Awareness of Gender-Specific Obstacles and Helping Women
Entrepreneurs............................................................................................................. 47
G. Alleviating Psychological and Cultural Barriers ................................................. 50
III. CONCLUSIONS AND RECOMMENDATIONS OF THE UNECE ..........................

INTERNATIONAL CONFERENCE “Reducing Barriers to Entrepreneurship
and Encouraging Enterprise Development: Policy Options” .................................. 53
CONCLUSIONS..................................................................................................... 53
RECOMMENDATIONS ........................................................................................ 55
SELECTED BIBLIOGRAPHY ............................................................................... 57
ANNEX....................................................................................................................... 61
Notes to Tables: Selected Indicators Measuring the Impediments to .....................
Entrepreneurship in UNECE Countries ................................................................. 61
vi Developing Entrepreneurship in the UNECE Region
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ABBREVIATIONS
ACOA Atlantic Canada Opportunities Agency

AMD Dram [Armenian Currency]
APEC Asian Pacific Economic Cooperation
BEEPS Business Environment and Enterprise Performance Survey
CE Council of Europe
CEB Central and Eastern Europe and the Baltic States
CEN European Committee for Standardization [EU]
CHASE Chambers against Stereotypes in Employment
CIS Commonwealth of Independent States
CPI Corruption Perception Index
DOC Department of Commerce [United States]
EBA European Business Association
EBRD European Bank for Reconstruction and Development
EECCA Eastern Europe, Caucasus, and Central Asia
EFMD European Foundation for Management Development
EU European Union
EUR Euro
FIAS Foreign Investment Advisory Service
GDP gross domestic product
GNI gross national income
IFC International Finance Corporation
IPM Institute for Privatization and Management [NGO in Minsk, Belarus]
ISO International Organization of Standardization
NABK National Agency for the Prevention of Corruption [Kyrgyzstan]
NSBK National Council to Combat the Corruption [Kyrgyzstan]
NGO non-governmental organization
OECD Organization for Economic Co-operation and Development
PHARE Poland and Hungary: Assistance for Restructuring their Economies
R&D research and development
RBC Royal Bank of Canada
SEE South-East Europe
SECO Swiss Secretariat for Economic Affairs
SME small and medium-sized enterprise
STP single tax payment
UK United Kingdom
UN United Nations
UNECE United Nations Economic Commission for Europe
UNI Union Network International
US United States
USD United States dollar
WEF World Economic Forum
WBI Women in Business Initiative
Developing Entrepreneurship in the UNECE Region vii
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OVERVIEW
In the emerging market economies 1 (“countries in transition”) of the region covered

by the United Nations Economic Commission for Europe (UNECE), the small and medium-
sized enterprise (SME) sector emerged as a result of privatization and the break-up of large
State-owned enterprises, as well as market liberalization and the setting up of demand-driven
private companies. The weight of SMEs in economic activities varies considerably within this
group of countries. Whereas in the new EU member States it is generally close to the EU
average, in many countries of South-East Europe and the former Soviet Union, it is much
lower.
In both developed and emerging market economies, entrepreneurs perceive major

obstacles to enterprise development in a similar way, referring primarily to the inefficiency of
governance (government bureaucracy and corruption), taxation issues (tax administration and
taxation rates) and inadequate access to finance. However, the impact of these obstacles on
the new and operational enterprises is greater in emerging economies.
Inefficient governance means administrative barriers such as burdensome

establishment rules, excessive reporting requirements and associated paperwork, inadequate
information on changes in norms and regulations, and ruinous penalties for violations of
regulations. For starting a new enterprise, the administrative steps, stipulated by law, usually
include obtaining an operational permit, notarizing the company deeds, opening a bank
account and registering and/or obtaining authorization from various government agencies.
For existing small companies, the administrative barriers include complex reporting
requirements, government inspections, tax administration, import and export licensing and
procedures, foreign exchange procedures, product certification and labour regulations. In
emerging economies, the legal bases for enterprise inspections remain complex, spanning
multiple jurisdictions and government bodies.
To deal with administrative barriers to entrepreneurship, countries of the region

largely follow similar policies, drawing on good practices and on recommendations by
international organizations. They focus on streamlining the legislative basis for enterprise
registration and operation, simplifying the procedures to follow and reducing their number,
decreasing the amount of time required to start operations, lowering the financial burden
associated with enterprise establishment and alleviating the supervisory burden incurred by
the already operational enterprises.
During the 2000s, the emerging market economies have made considerable progress in
reducing such barriers. From 2003 to 2008, in the new EU Member States, countries of South-
East Europe and those of Eastern Europe, the Caucasus, and Central Asia (EECCA), the
1
The term refers to a group of countries of the region that used to have centrally planned economies and have implemented
reforms to transform the latter into market economies. This group comprises 10 new EU Member States (Bulgaria, the Czech
Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia), countries of South-East Europe
(Albania, Bosnia and Herzegovina, Croatia, Montenegro, Serbia, The former Yugoslav Republic of Macedonia), as well as
the countries of Eastern Europe, the Caucasus, and Central Asia (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,
Kyrgyzstan, Republic of Moldova, the Russian Federation, Tajikistan, Turkmenistan, Ukraine, Uzbekistan).
viii Developing Entrepreneurship in the UNECE Region
__________________________________________________________________________________________
number of days it takes to set up a company decreased by 40 per cent, and the cost of starting
operations as a percentage of gross national income per capita fell by about 7 percentage
points. Despite such improvements, an entrepreneur in emerging market economies still has
to go through more procedures when registering a company, the procedures take more time
and are relatively more costly than when a similar undertaking takes place in a developed
market economy. In 2008, setting up a company in this group of countries took about 27
days, against an average of 14 days in developed market economies. The number of
procedures required for setting up an enterprise exceeded, on average, that in developed
economies by a third (9 against 6). While the cost of starting a business in catching-up
economies has been decreasing recently, in 2008 it was still almost four times higher than that
in the selected developed market economies (11 as opposed to 3 per cent of per capita GNI).
According to surveys, companies consider taxation as one of the most important

components of the business environment. The taxation barriers comprise heavy tax rates,
numerous taxes to be paid, burdensome tax administration and, consequently, the amount of
time companies have to spend dealing with tax obligations. Governments of catching-up
economies are increasingly realizing the importance of reducing the tax burden on enterprises
and streamlining the tax administration. In the mid-2000s, the percentage of companies
considering the tax administration as a burden fell in EECCA countries and those of South-
East Europe. Along the same lines, between 2005 and 2008, both the taxation rates and the
total number of tax payments in the emerging market economies of the region tended to
decrease. As a group, these countries narrowed the gap with the Organisation for Economic
Co-operation and Development (OECD) member countries in terms of the time required to
comply with taxation requirements.
The efforts of governments to ease the tax burden on enterprises in emerging

economies have not yet fundamentally changed firms’ perception of taxation requirements as
a major operational hurdle. The large number of national and local taxes, in particular, means
burdensome filing requirements. In 2008, the number of tax payments incurred by companies
in emerging economies was over three times higher than that in the OECD economies. The
results of expert research in this area therefore attest to the need for further aligning the
taxation policy in this group of countries to the requirements of enterprises, especially SMEs.
Access to finance is essential for conducting business operations. In many of the

developed countries, compared with large firms, SMEs tend to rely more on commercial bank
financing. In emerging market economies, on the contrary, commercial banks often reject
SME project proposals because of inadequate collateral, poor financial status of enterprises
and insufficiently clear business plans. Barriers to bank finance are particularly high for those
start-ups whose competitive strength is based on research and development, and innovation.
In the mid-2000s, the conditions for SME bank financing in the region improved both
in terms of less strict collateral requirements and the time needed to negotiate a loan. At the
same time, governments, in cooperation with the private sector, developed some alternative
sources of SME financial support, including public and public-private financing and
guarantee funds. International financial institutions contributed to developing leasing
facilities, which have become an important source of medium- and long-term enterprise
finance in a number of emerging market economies. Along the same lines, micro-financing
Developing Entrepreneurship in the UNECE Region ix
__________________________________________________________________________________________
has become an integral part of the financial system in many successor States of the Soviet
Union.
The International Conference on Reducing Barriers to Entrepreneurship and

Encouraging Enterprise Development: Policy Options, organized by UNECE in June 2007,
recommended that governments, in consultation with banking institutions, should design
measures facilitating the access of SMEs to bank finance, in particular to special credit
schemes for long-term investment financing with prolonged grace periods, with loan
guarantees provided through public-private SME-focused programmes, and more favourable
collateral acceptance rules.
In today’s global economy, foreign expansion of enterprises is a prerequisite for

enhanced economic efficiency. SMEs, however, are hindered from exporting and investing
abroad by a number of internal and external barriers. The internal barriers include shortage of
working capital and inadequate access to financing, insufficient information on business
opportunities and markets abroad, and lack of communication with potential customers. The
external barriers include home and host country regulations unfavourable to exporting,
importing and cross-border investment, and the lack of relevant incentives from governments.
Governments of developed and emerging market economies have been making efforts
to reduce the barriers to foreign expansion of SMEs through improving the information
services to companies, as well as through promoting their participation in global value chains
and clustering. Programmes to this end have been initiated at regional, interregional and
cross-border levels in such countries as Slovenia, Czech Republic, Hungary and Latvia.
Further government assistance to foreign traders and investors could focus on providing them
with additional information resources, facilitating intellectual property rights protection for
SMEs and sharing the cost of applying international standards for exporting goods.
In early 2000, high corruption perceptions in countries with emerging economies were
supported by company surveys, which signalled that the extortion of illegal payments was
common during business registration. Recently, these countries have been endeavouring to
improve governance overall and intensifying their fight against corruption in a number of
areas. This work has focused on the reform of the judicial system and law enforcement, and
tax and institutional reforms. Anti-corruption advisory bodies have been set up, and measures
put in place to strengthen the accountability of civil servants. Actions taken by governments
have aimed at fostering the independence of judges and court sentences, increasing the
incentives for enterprises to pay taxes, reducing the number of tax audits, introducing online
systems of interaction between government officials and companies, streamlining the
activities of law-enforcement agencies, and enhancing operational transparency of the civil
service, including promoting competitive recruitment and continuous professional training.
According to the data available, in the first few years of the new millennium, the level
of corruption decreased − to varying extents − in all groups of emerging market economies,
especially in the new EU member States. Supporting the anti-corruption measures by
governments, the 2007 International Conference also recommended that business operators
x Developing Entrepreneurship in the UNECE Region
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should be encouraged to embrace and enact the 10 principles of the United Nations Global
Compact. 2
The barriers to women entrepreneurship form part of broader gender-related barriers

related to social stereotypes and position of women in society (e.g. cultural stigmas associated
with gender roles and property ownership, the perceived lower risk tolerance among women,
insufficient business training and inadequate access to finance and market information).
Addressing the barriers faced by women entrepreneurs is linked to reforming institutions,
adjusting social polices and attitudes towards women’s role in society.
International experience and good practices have shown that gender issues are
becoming increasingly incorporated into government policies. Governments have been
facilitating women entrepreneurship through organizing special programmes for raising
awareness of its potential and benefits, designing financing schemes targeting women
entrepreneurs, initiating business training courses and mentoring programmes for would-be
entrepreneurs. Governments have been cooperating with NGOs to identify and overcome the
cultural prejudices and societal stereotypes that constrain entrepreneurial motivation in
women and prevent them from accessing entrepreneurial positions. The International
Conference pointed out that enterprise development policies should be gender sensitive.
Governments should therefore allocate resources to create coordinating “focal points” for
women entrepreneurship development.
The regional diversity of enterprise development suggests that owing to cultural and
psychological differences, individuals from different countries and social strata respond
differently to entrepreneurial opportunities and barriers.
In both developed and emerging market economies, governments and other

stakeholders are endeavouring to raise the status of entrepreneurs in society and are
developing mechanisms for motivating individuals to become entrepreneurs. Public-private
programmes targeting young people introduce them to the major issues of entrepreneurship
and enterprise operation, and offer practical assistance in organizing mini-enterprises. At
universities, governments also run programmes intended to improve the start-up climate and
increase the number of innovative enterprises.
Reducing cultural and psychological barriers to entrepreneurship remains a long-term

objective for many emerging market economies of the region. The results will gradually
materialize in the changed perceptions of entrepreneurship in society and will benefit most the
younger generations to come.
2
http://www.unglobalcompact.org/AbouttheGC/TheTENPrinciples/index.html The Global Compact asks companies to
embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour
standards, the environment, and anti-corruption. Its 10 principles in the areas of human rights, labour, the environment and
anti-corruption enjoy universal consensus and are derived from the following: (a) Universal Declaration of Human Rights;
(b) [International Labour Organization] Declaration on Fundamental Principles and Rights at Work; (c) Rio Declaration on
Environment and Development; and (d) United Nations Convention against Corruption.
Developing Entrepreneurship in the UNECE Region xi
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INTRODUCTION
The purpose of this publication is to identify and examine the major impediments to
enterprise development in the emerging market economies of the UNECE region and discuss
the measures that are being taken by governments to reduce or eliminate them. The
publication also draws on the major findings and recommendations to governments by the
2007 UNECE International Conference on Reducing Barriers to Entrepreneurship and
Encouraging Enterprise Development: Policy Options.
Entrepreneurship and enterprise development are increasingly recognized as a pillar of

sustained economic growth and innovation in both developed market and emerging market
(transition) economies. In emerging market economies, in particular, the growth of the small
and medium private sector is expected to be an effective means of promoting economic
restructuring and raising competitiveness. New innovation-based enterprises are encouraged
to develop new products and technological solutions and infuse them into the economy, thus
enhancing the economic and technological efficiency.
Throughout the region, new and operational enterprises face difficulties related to the
inefficiency of governance, heavy taxation and complicated tax administration, and difficult
access to finance. These barriers are particularly high in the countries with emerging market
economies, which find themselves at various stages of developing market institutions.
Chapter I highlights the role and factors influencing the development of

entrepreneurship in the modern economy. Chapter II section A examines administrative
barriers that inhibit the establishment and growth of small and medium-sized enterprises, and
highlights government action to reduce them. Sections B and C discuss the recent progress in
alleviating obstacles related to taxation of enterprises, and the role of governments and other
stakeholders in facilitating the financing of start-ups and operational SMEs. Section D
reviews policy initiatives aimed at reducing the obstacles to the expansion of SMEs abroad.
Section E focuses on government effort to fight corruption in the context of enterprise

establishment and operation. Section F highlights the initiatives aimed at eliminating the
gender-specific obstacles to entrepreneurship and assisting women entrepreneurs, while
section G discusses the cultural and psychological barriers to enterprise development and
public-private cooperation to lower those. Chapter III comprises the recommendations of the
2007 UNECE International Conference.
Explanatory notes to the tables have been consolidated in the annex.
For the purposes of this publication, the emerging market economies are divided into
three major groups: (a) new EU members; (b) South-East Europe; and (c) Eastern Europe, the
Caucasus and Central Asia (EECCA).
Developing Entrepreneurship in the UNECE Region 1
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I. “ENTREPRENEURSHIP”: Definition, Economic Potential and Drivers
“Entrepreneurship” can be defined as profit-oriented economic activities (and related

stream of decision-making) undertaken under conditions of risk and uncertainty. It also relates
to innovation because entrepreneurs try to discover “new combinations” of the factors of
production in order to make a profit. OECD defines entrepreneurs as “the risk-taking agents
of change and growth in a market economy that can act to accelerate the generation,
dissemination and application of innovative and profitable ideas”. 3
The development of entrepreneurship increases national wealth and benefits

consumers through bringing new and less costly products into the market. The use of new
technologies and innovative solutions creates enhanced macroeconomic efficiency. 4 New
entrepreneurs also increase the number of job opportunities, and thus contribute to the
achievement of broad development objectives.
Experts suggest a number of indicators to measure the scale or a particular aspect of

entrepreneurial activity. One such indicator, for example, is the number of new start-up
companies in the economy. It is instructive to further split this number into start-ups
motivated by necessity and opportunity. 5 From another angle, the development of
entrepreneurship is associated with the number of patents registered by innovating companies
in a country or region. This indicator emphasizes the link between entrepreneurship and
innovation.
The scope of entrepreneurship development can be illustrated by the economic

performance of SMEs. 6 In 25 countries of the European Union, SMEs contribute 57 per cent
of value added in manufacturing and over 50 per cent in several OECD countries. They also
constitute over 95 per cent of the number of enterprises and account for between 60 and 70
per cent of employment in the OECD countries. 7 Within the EU area, SMEs account for over
two thirds of the workforce in the non-financial sector of the economy.
In the region’s emerging market economies, the appearance of the SME sector has
been largely linked to privatization and the break-up of large State-owned enterprises, as well
as market liberalization. It is argued that the emergence of new small and medium-sized
firms is likely to have a crucial impact on the supply of new jobs, offer of new modern
products and services, and healthy competitive pressure within the economy. 8 At the same
time, their weight in the economic activity of this group of countries varies considerably.
3
OECD, Fostering Entrepreneurship, 1998, p.11.
4
This aspect of entrepreneurial activity as well as its impact on the national competitiveness is examined by the UNECE
Team of Specialists on Innovation and Competitiveness Policies (see ECE/CECI/ICP/2007/2).
5
Persons start a business out of necessity usually because they cannot find a job to ensure their basic needs and pursue this
activity to survive. On the contrary, starting up a business by opportunity occurs if persons seek to exploit unique business
opportunities for profit.
6
The European Commission defines SMEs as enterprises with fewer than 250 persons employed, annual turnover of up to
EUR 50 mn, and a balance sheet not exceeding EUR 43 mn. (European Commission Recommendation of 3 April 1996 on the
definition of small and medium-sized enterprises, (Text with EEA relevance) (96/280/EC), Official journal NO. L 107,
30/04/1996 P. 0004 – 0009.
http://europa.eu.int/ISPO/ecommerce/sme/smedef_EN.doc )
7
OECD, SME and Entrepreneurship Outlook, 2005, p.21.
8
McMillan, J., Woodruff, C., Journal of Economic Perspectives, “The Central Role of Entrepreneurs in Transition
Economies”, 2002, Vol. 16, No. 3, pp.153-170.
2 Developing Entrepreneurship in the UNECE Region
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The limited data available attest that in the early 2000s, in the new EU member States
the share of SMEs in employment ranged from 55 to 70 per cent. Their weight in gross
domestic product (GDP) exceeded 55 per cent in several of the new EU members (Estonia,
Latvia, Lithuania and Slovenia) and ranged from 30 to 40 per cent in two others (Czech
Republic and Hungary). In 2005, in non-EU countries of South-East Europe, their weight in
employment ranged from 32 per cent in Serbia to 65 per cent in Croatia. The share of SMEs
in GDP fluctuated from 36 per cent in Bosnia and Herzegovina to around 47 per cent in
Serbia, and 56 per cent in Croatia.
The countries of Eastern Europe, the Caucasus and Central Asia display similar
heterogeneity. In 2005, the share of SME-generated employment in the total varied from 16
per cent in Belarus to 51 per cent in Uzbekistan. In Turkmenistan and Uzbekistan the weight
of SMEs in GDP was higher than 60 per cent, in Azerbaijan and the Russian Federation it
made up between 40 and 45 per cent, in Armenia, Georgia and the Republic of Moldova it
varied between 25 and 30 per cent, and was as low as 6 to 12 per cent in Belarus, Kyrgyzstan
and Ukraine. 9
For the purposes of this publication, the secretariat tries to distinguish trends in the
three major groups of emerging market economies: new EU members; South-East Europe;
and Eastern Europe, Caucasus and Central Asia.
The indicated unevenness of SME development across countries suggests a variety of

factors influencing the development of entrepreneurship and private enterprises in the
formerly planned economies. In the view of the secretariat, for these countries the following
drivers of entrepreneurship and enterprise development are of particular relevance:
• General settings for a market economy; the rule of law in general and the stability of
property rights and low levels of corruption, in particular; business-friendly tax regime
and labour-market regulations;
• Regulatory, institutional and cultural conditions, which include conditions for

enterprise entry and exit from the market as well as conditions for their operation and
competition;
• Levels of research and development, and technological potential of countries; capacity

of innovating enterprises translate the results of R&D into commercial products;
• Development of financial markets and the level of sophistication of financial services;

conditions at which entrepreneurs can access the finance required to start and operate
an enterprise;
• Adequate education and training, including the opportunities for training of would-be
and actual entrepreneurs;
9
UNECE Secretariat.
__________________________________________________________________________________________
• Degree of exposure to external competition of the economy in general and of its

individual sectors in particular, the unimpeded cross-border movement of goods,
services and capital for more efficient use of resources; and
• Cultural and psychological factors, which in particular influence the entrepreneurial

capacity of women, young people and ethnic minorities.
The role of individual factors tends to change along with the progress of market
reforms and varies in individual countries. Underdevelopment or imbalanced growth of the
driving factors translates into barriers to enterprise development. For example, a taxation
regime favouring SMEs, or the removal of bureaucratic barriers to enterprise establishment,
will not bear fruit if other conditions are not in place, such as access to finance or well-trained
managers.
__________________________________________________________________________________________
II. MAJOR OBSTACLES TO ENTERPRISE DEVELOPMENT,

AND GOVERNMENT ACTION TO REDUCE OR ELIMINATE THEM
Well-grounded policies aimed at reducing obstacles to enterprise development require

good practical knowledge of regulatory and institutional barriers, including their scope and
importance for the start-ups and already operational enterprises. Company surveys conducted
by national associations of entrepreneurs and SMEs, as well as by international organizations
and NGOs (OECD, World Bank, European Bank for Reconstruction and Development,
Transparency International and World Economic Forum) enable a better insight into problems
and possible solutions in this area. 10
In its Executive Opinion Survey (2004), the World Economic Forum (WEF)
interviewed senior business leaders from participating countries in an effort to identify the
major impediments to “doing business”. Fourteen indicators were selected, according to
which the entrepreneurs evaluated the business environment. As the most important obstacles
to entrepreneurship the executives cited complicated tax regulations, excessive tax rates,
restrictive labour regulations, inefficient bureaucracy and an inadequately educated work
force.
The joint EBRD-World Bank Business Environment and Enterprise Performance

Survey (BEEPS), conducted in 2002 and 2005, interviewed managers and owners of more
than 20,000 firms across 26 countries of Central and Eastern Europe, the former Soviet Union
and Turkey. The survey focused on business perceptions of major impediments to doing
business in the indicated countries and it enables one to compare, on a limited scale, the
evolution of these perceptions from 2002 to 2005. 11
These two surveys indicate that entrepreneurs from both developed and emerging
market economies perceive major obstacles to doing business in a similar way. According to
the WEF survey report, in 2004 the main obstacles in all regions were: (a) inefficient
bureaucracy, (b) too high taxes, (c) inadequate access to finance, (d) cumbersome tax
regulations and (e) corruption (see table 1).
10
The following studies by international organizations were used in the preparation of this publication: OECD’s SME and
Entrepreneurship Outlook (2005), OECD - Asia-Pacific Economic Cooperation (APEC) Member Policy Makers Survey and
the Survey of SME’s Perceptions of Barriers to Access to International Markets (2006), IFC’s Business Environment Annual
Surveys, World Economic Forum’s Global Competitiveness Reports 2006-2007 and 2007-2008, World Economic Forum
Executive opinion Survey (2004), Doing Business project survey (http://www.doingbusiness.org/), EBRD’s Micro, Small
and Medium-sized Enterprises Strategy (2006), and Transparency International’s Global Corruption Report (2006).
11
The Business Environment and Enterprise Performance Survey (BEEPS) is a joint initiative of the European Bank for
Reconstruction and Development and the World Bank. The BEEPS and the World Bank Group's Doing Business are
complementary surveys to examine the environments in which firms do business. Doing Business survey is a compilation of
indicators related to various government policies, rules, and procedures, while BEEPS is more focused on company
perceptions of the ways government policies, rules, and procedures are implemented in practice. In the area of corruption
perceptions, results of the BEEPS are complementary to Transparency International's Corruption Perceptions Index (TI-CPI)
and the World Bank Institute's Governance Indicators (WBI-GI), which endeavour to merge the various expert opinions and
results of surveys into aggregate indexes.
(http://siteresources.worldbank.org/INTECAREGTOPANTCOR/Resources/BAAGREV20060208ECA.pdf)
__________________________________________________________________________________________
Table 1
Major obstacles to entrepreneurship in selected countries, 2004
labour
currency
educated work force
Access to financing
Policy instability
instability/coups
Crime and theft
Poor work ethic
Tax regulations
infrastructure
Inadequately
bureaucracy
Government
Corruption
Inadequate
regulations
regulations
Restrictive
Inefficient
Tax rates
Inflation
Foreign
OECD average
(indicated countries), 2.0 3.0 3.0 3.5 6.2 6.5 6.7 8.0 8.3 10.5 11.5 11.8 12.0 12.0
of which:
Finland 3 1 2 4 8 5 7 6 10 9 12 14 13 11
France 2 3 1 4 6 5 7 8 13 9 11 14 12 10
Germany 2 3 1 4 6 5 8 7 10 11 13 9 12 14
Japan 2 3 6 1 8 4 5 10 9 13 14 7 11 12
United Kingdom 2 4 5 6 3 9 8 7 1 13 10 14 12 11
United States 1 4 3 2 6 11 5 10 7 8 9 13 12 14
New EU members
average, 2.4 2.9 3.4 4.0 4.2 6.3 8.1 9.3 9.0 9.6 10.8 11.1 11.3 12.4
of which:
Bulgaria 1 2 3 4 5 7 9 13 6 8 12 10 11 14
Czech Republic 2 3 1 5 4 7 9 8 6 10 11 14 13 12
Estonia 2 6 3 7 8 4 1 11 5 9 10 12 14 13
Hungary 5 2 1 4 8 3 6 12 9 11 13 14 7 10
Latvia 2 3 5 4 1 8 7 6 12 14 10 9 13 11
Lithuania 2 1 5 3 4 12 9 7 11 6 10 8 14 13
Poland 4 2 5 1 3 6 13 7 9 8 11 10 14 12
Romania 2 1 3 5 4 6 7 11 12 13 10 9 8 14
Slovakia 2 6 5 3 1 4 12 9 11 7 10 14 8 13
South-East Europe
average, 3.3 4.7 4.0 4.3 5.7 5.0 7.0 6.0 8.3 9.3 9.3 11.3 13.3 13.3
of which:
Croatia 6 2 3 1 4 8 5 9 11 13 7 10 12 14
The former Yugoslav
Republic of Macedonia 3 8 1 2 4 5 11 6 7 9 10 12 14 13
Serbia & Montenegro 1 4 8 10 9 2 5 3 7 6 11 12 14 13
Commonwealth of
Independent
1.0 2.5 3.5 3.5 4.5 6.5 7.5 8.5 8.5 10.0 11.0 12.0 12.0 14.0
States average,
of which:
Russian Federation 1 2 3 5 4 7 8 9 6 10 13 11 12 14
Ukraine 1 3 4 2 5 6 7 8 11 10 9 13 12 14
All listed emerging
market economies, 2.4 3.2 3.6 4.0 4.6 6.1 7.8 8.5 8.8 9.6 10.5 11.3 11.9 12.9
average
Source: World Economic Forum (2004), Executive Opinion Survey.

Note: Averages for country groupings are arithmetic.
__________________________________________________________________________________________
These obstacles were also perceived as the most significant in all groups of emerging
market economies (that is the new EU members, South-East Europe and the Russian
Federation and Ukraine (representing the EECCA). Other factors, such as political instability,
inflation and foreign currency regulations seem to have been less important for business
persons both in developed and in emerging market economies.
National enterprise surveys largely confirm the findings by international

organizations. In Belarus, for example, a survey conducted in 2005 identified as three top-
ranking obstacles to enterprise development high tax rates and cumbersome tax regulations,
numerous laws governing enterprise operation and frequent changes therein, and numerous
inspections of operational enterprises by government bodies (table 2).
Table 2
Major obstacles to business development in Belarus, 2005
Average score
(max = 5)
1 Tax administration (high tax rates, large number of taxes, frequent changes in 4.6
the reporting requirements)
2 Too many laws and regulations governing the entrepreneurial activity and 4.5
frequent changes therein
3 Too many inspections by government agencies 3.7
4 Difficulty of obtaining a licence 3.3
5 Registration and repeated registration of an enterprise 2.8
6 Corrupt officials 2.2
7 Crime in business operation 1.8
8 Inadequate protection of property rights 1.8
Source: Nikitenko, P., “Enterprises’ Performance in Belarus: Government Efforts to Improve Business Climate”. Paper
presented at the UNECE International Conference on Reducing Barriers to Entrepreneurship and Encouraging Enterprise
Development: Policy Options, Geneva, 18–19 June 2007.
Note: The survey covered large, medium and small-sized enterprises. The indicators’ values are ranked from 1 to 5, the latter
indicating the highest attributed importance.
In summary, while the rankings in individual emerging market economies differ, in

the mid-2000s in most of the countries surveyed, business executives referred to three clusters
of factors inhibiting entrepreneurship and enterprise operation. These clusters are: (a)
inefficiency of governance (government bureaucracy and corruption), (b) taxation issues
(taxation regulations and taxation rates), and (c) inadequate access to finance.
Participants in the 2007 UNECE International Conference on Reducing Barriers to

Entrepreneurship and Encouraging Enterprise Development: Policy Options also emphasized
the importance of cultural and psychological barriers, particular with regard to women, ethnic
minorities and young people.
__________________________________________________________________________________________
The following sections will explore these factors in more detail and highlight the
efforts made by Governments to alleviate them.
A. Reducing the Administrative Barriers
Administrative barriers to entrepreneurship consist of cumbersome establishment

rules, excessive reporting requirements and associated paperwork, inadequate information on
changes in norms and regulations, and ruinous penalties for violations of regulations. When
starting a new enterprise these barriers include the number of steps, stipulated by law, to
obtain an operational permit, notarize the company deeds, open a bank account and register
and/or obtain authorization from various government agencies.
For existing enterprises, the barriers are formed by extensive reporting requirements
and the associated paperwork, insufficient information on changes in norms and regulations,
and heavy fines for violation of regulations.
The problem, however, is not unique to emerging market countries. In the EU-25, for
example, the costs of complying with administrative requirements are estimated at some 3.5
per cent of GDP. Most of these costs are linked to substantive reporting requirements in the
public interest. Nevertheless, there seems to be considerable potential for reducing this
burden. By 2012, the EU and its member States are expected to reduce the cost associated
with the administrative burden by 25 per cent. It is estimated that this reduction would over
time increase the GDP of the European Union by up to 1.5 per cent (or EUR 150 billion per
year). 12
1. Establishment of enterprises
(a) Administrative procedures
The significance of the different barriers to entrepreneurship varies from one country
to another. For example, research conducted in the Russian Federation by the World Bank’s
Foreign Investment Advisory Service has shown that major obstacles to enterprise
development included difficult access of entrepreneurs to commercial land and real estate. A
large proportion of land remains publicly owned and the administrative procedures related to
purchasing land are time-consuming and cumbersome. In 2006, for example, to purchase a
plot of land in an urban area, firms spent a minimum of 273 days, submitting at least 11
documents, which had been issued and approved by 11 different agencies at the federal,
regional and municipal levels. 13
In 2008, the number of procedures required for setting up an enterprise in emerging

market countries on average exceeded that in developed economies by about 50%, e.g. 9
against 6 (see table 3 (a)). While in countries of South-East Europe this number was higher
than the average for all emerging market economies (11), in EECCA it was somewhat lower
(8).
12
European Commission, Annual Progress Report on Growth and Jobs, Brussels, "A year of delivery", 2006, p.12.
13
FIAS, “The Investment Climate Advisory Service”, 2006 Annual Report.
__________________________________________________________________________________________
Registering an enterprise can be a complex bureaucratic process, as can be seen from

box 1.
Box 1
Usual procedures and requirements for registering a business
• Screening procedures, which include obtaining an operational permit, filing with the
Statistical Bureau, notarizing company deeds, opening a bank account with the required start-
up capital, or registering with the Company Register.
• Tax-related requirements, for example registering for the various taxes as the corporate
income tax or VAT.
• Labour/social security-related requirements, which include registering for accident and

labour risk insurance as well as health and medical insurance, inspections by social security
officials, notarizing the labour contract, registering with pension funds or filing with the
Ministry of Labour.
• Safety and health requirements, which include obtaining authorization and certificates from
the health and safety authorities, passing inspections related to work safety, building, fire,
sanitation, and hygiene.
• Environment preservation requirements, which include inspections from environmental

officials, or registering with the water management and water discharge authorities.
Source: Djankov, S., La Porta, R., de Silanes, F., Shleifer, A., The World Bank, “The Regulation of Entry”,
Harvard Institute of Economic Research, Paper No. 1904, August 2001.
http://rru.worldbank.org/Documents/PapersLinks/551.pdf
Table 3 (a) shows that over the period from 2003 to 2008 in emerging market
economies the number of administrative procedures for start-ups remained stable, at between
9 and 11. This was also the case for the group of new EU members, where this number made
8 throughout the whole period and the countries of South-East Europe, in which it vacillated,
between 11 and 12.
In contrast, in EECCA the number of procedures for starting an enterprise dropped

from 11 in 2003 to 8 in 2008. In this region, the decrease was particularly steep in Armenia
(from 10 in 2003 to 2 in 2008), Georgia (from 9 to 5) and Belarus (from 16 to 10), followed
by the Russian Federation (from 12 to 8). Over the same period, in South-East Europe the
reduction in the number of procedures is notable in Croatia (from 12 to 8) and the former
Yugoslav Republic of Macedonia (from 13 to 9).
__________________________________________________________________________________________
Table 3 (a)
Administrative procedures associated with starting an enterprise in selected countries,
number and duration, 2003-2008
Country Number of procedures Duration (days)

2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008
OECD average 7 7 7 7 6 6 29 36 27 27 15 14
(indicated countries),
of which:
Finland 3 3 3 3 3 3 31 31 14 14 14 14
France 9 8 5 5 5 5 42 41 7 7 7 7
Germany 9 6 6 5 9 9 45 49 49 48 24 18
Japan 11 11 11 11 8 8 31 75 75 75 23 23
United Kingdom 6 6 6 6 6 6 18 13 13 13 13 13
United States 5 6 6 6 6 6 5 6 6 6 6 6
New EU members 8 8 8 8 8 8 43 43 41 31 30 24
average,
of which:
Bulgaria 11 11 11 11 9 9 32 32 32 32 32 32
Czech Republic 10 10 10 10 10 10 40 40 40 40 24 17
Estonia .. 6 6 6 5 .. 72 35 35 7
Hungary 6 6 6 6 6 6 52 52 52 38 38 16
Latvia 5 5 5 5 5 5 16 16 16 16 16 16
Lithuania 8 8 8 8 7 7 26 26 26 26 26 26
Poland 10 10 10 10 10 10 31 31 31 31 31 31
Romania 6 6 5 5 5 6 29 29 28 11 11 14
Slovakia 10 10 9 9 9 9 103 103 52 25 25 25
Slovenia 9 9 9 9 9 9 60 60 60 60 60 60
South-East Europe
(SEE) average, 12 12 12 12 12 11 50 51 51 43 34 32
of which:
Albania 11 11 11 11 11 11 41 41 41 41 39 36
Bosnia and Herzegovina 12 12 12 12 12 12 59 59 54 54 54 54
Croatia 12 12 12 12 10 8 49 49 49 49 45 40
The former Yugoslav
Republic of Macedonia 13 13 13 13 10 9 48 48 48 48 18 15
Montenegro .. .. .. .. 15 15 .. .. .. .. 24 24
Serbia 11 12 12 11 11 11 51 56 56 23 23 23
Commonwealth of
Independent States 11 12 11 10 10 8 43 43 42 41 35 25
(EECCA) average,
of which:
Armenia 10 10 10 10 9 2 25 19 19 19 18 2
Azerbaijan 15 15 14 14 14 13 106 106 122 114 52 30
Belarus 16 16 16 16 16 10 79 79 79 79 69 48
Georgia 9 9 9 8 7 5 25 25 25 21 16 11
Kazakhstan 9 10 10 8 8 8 25 26 26 25 21 21
Kyrgyzstan 8 8 8 8 8 8 21 21 21 21 21 21
Rep. of Moldova 11 11 10 10 10 9 42 42 30 30 30 23
Russian Federation 12 13 10 9 8 8 42 43 37 34 29 29
Tajikistan .. .. .. .. 14 13 .. .. .. .. 67 49
Ukraine 15 15 15 15 10 10 40 40 34 34 33 27
Uzbekistan 8 8 8 8 8 7 29 29 29 29 29 15
Average of all listed
emerging market
economies 10 11 10 10 10 9 45 46 45 38 33 27
Source: World Bank, http://www.doingbusiness.org/

Notes: Averages for country groupings are arithmetic. Data for Turkmenistan are not available.
__________________________________________________________________________________________
Equally illustrative is the comparison of the number of days required to establish an

enterprise. Recently this number has been falling in all emerging market countries. During the
period from 2003 to 2008, on average the number of days dedicated by an entrepreneur to
start a company decreased by 40 per cent. The reduction was greatest in the new EU members
(about 44 per cent), while in the countries of EECCA and South-East Europe it was 42 and 36
per cent respectively. Among the new EU member states, the most significant reduction was
in Slovakia (76 per cent) followed by Hungary (69 per cent) and Czech Republic (58 per
cent).
Within the group of South-East European countries, Serbia and the former Yugoslav
Republic of Macedonia, with 55 per cent and 69 per cent respectively, had the most
significant decrease in the number of days required to register a company. Among EECCA
countries, Azerbaijan, Armenia and Uzbekistan experienced the highest reduction, ranging
from 48 per cent to 92 per cent.
The European Commission applies the rule of thumb that the time required to
establish a company should not exceed one week. In France and the United States, a company
can be set up in 7 and 6 days, respectively. However, in 2008, setting up a company in an
emerging market country took an average of 27 days, which is almost twice the amount of
days of selected developed market economies. In EECCA countries, the average number of
days was 25 and in countries of South-East Europe 32. In some countries of both groups it
took even longer; for example, up to 48 days in Belarus, 49 days in Tajikistan and 54 days in
Bosnia and Herzegovina. Thus emerging market countries still seem to have a long way to go
to reduce the time required to establish an enterprise to comply with international good
practice.
(b) Cost of establishment
According to the World Bank, the cost of setting up an enterprise comprises all fees
due to government bodies, and fees for legal or professional services if such services are
required by law, including fees for purchasing and legalizing company books. Company law,
the commercial code and specific regulations, and fee schedules are used as sources for
calculating costs. In the absence of fee schedules, a government officer’s estimate or estimates
of corporate lawyers are used. If several corporate lawyers provide different estimates, the
median reported value is applied. 14
14
World Bank Group, Doing Business, “Starting a Business”
www.doingbusiness.org/MethodologySurveys/StartingBusiness.aspx
__________________________________________________________________________________________
Table 3(b) shows the overall cost of establishing an enterprise in a country as a

percentage of Gross National Income (GNI) per capita. 15 During the period from 2003 to
2008, in emerging market economies overall the average cost of establishing an enterprise in a
country as a percentage of GNI per capita decreased by approximately 7 percentage points.
The drop was particularly steep in the South-East European countries, where this indicator
went down from 30 to 14 per cent of GNI (or by 16 percentage points). In the new EU
member States and the EECCA countries, the decrease was less pronounced, making up 6 and
5 percentage points respectively. Among the South-East European countries, Albania had an
impressive reduction rate of 36 percentage points (from 57 per cent of per capita GNI to 21).
Within the group of EECCA countries, the Republic of Moldova,
15
The Gross National Income (GNI) measures the total domestic and foreign income claimed by the residents of the
economy. GNI per capita is the Gross National Income divided by the mid-year population. (World Bank website,
http://www.worldbank.org/data/countrydata/aag.htm)
__________________________________________________________________________________________
Table 3(b)
Administrative procedures associated with starting an enterprise in selected countries,
cost and minimum capital required, 2003–2008
Cost Minimum capital
Country (Percentage of income per capita) (Percentage of income per capita)
2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008
OECD average (indicated 3 4 4 4 3 3 31 23 18 14 12 9
countries), of which:
Finland 1 1 1 1 1 1 30 30 29 28 27 8
France 1 1 1 1 1 1 29 29 0 0 0 0
Germany 6 9 9 9 5 6 49 45 45 24 46 43
Japan 11 11 11 11 8 8 75 31 31 31 0 0
United Kingdom 1 1 1 1 1 1 0 0 0 0 0 0
United States 1 1 1 1 1 1 0 0 0 0 0 0
New EU members average 15 15 11 10 9 8 78 74 67 60 58 54
of which,
Bulgaria 10 10 10 10 8 8 124 87 82 73 64 56
Czech Republic 10 10 11 9 9 11 47 47 45 39 37 35
Estonia .. .. 8 6 5 2 .. .. 50 41 34 28
Hungary 40 40 23 22 21 18 96 96 86 80 74 65
Latvia 10 10 9 4 4 3 45 45 41 32 26 22
Lithuania 4 4 4 3 3 3 68 68 63 57 49 46
Poland 21 21 21 22 21 21 247 247 238 220 204 197
Romania 11 11 7 5 4 5 0 3 2 2 2 2
Slovakia 9 9 6 5 5 2 50 50 46 41 39 34
Slovenia 15 15 14 12 9 9 20 20 19 17 54 50
South-East Europe (SEE) 30 30 24 21 16 14 120 120 61 55 38 17
average, of which:
Albania 57 57 32 31 22 21 45 45 41 40 37 34
Bosnia and Herzegovina 46 47 45 40 36 30 339 339 65 57 52 43
Croatia 17 17 14 13 12 12 26 26 24 23 21 18
The former Yugoslav
Republic of Macedonia 12 12 12 11 7 7 78 78 75 145 111 0
Montenegro .. .. .. .. 7 6 .. .. .. .. 0 0
Serbia 16 16 15 12 10 9 113 113 101 8 8 8
Commonwealth of 16 16 15 13 17 11 35 35 31 35 63 56
Independent States
(EECCA) average,
of which:
Armenia 8 8 7 6 5 2 5 5 5 4 3 0
Azerbaijan 17 17 14 12 9 7 0 0 0 0 0 0
Belarus 19 19 25 32 26 9 63 63 44 43 36 30
Georgia 23 23 14 14 11 10 63 63 55 47 4 0
Kazakhstan 11 11 11 9 7 8 36 36 33 28 23 23
Kyrgyzstan 11 11 12 10 10 9 1 1 1 1 1 1
Rep. of Moldova 25 25 19 15 13 12 32 32 25 22 19 15
Russian Federation 9 12 10 7 4 4 7 7 6 4 3 3
Tajikistan .. .. .. .. 75 40 .. .. .. .. 379 311
Ukraine 26 26 18 11 9 8 122 122 114 183 199 203
Uzbekistan 17 17 15 14 14 14 23 23 22 20 25 25
Average of all listed
emerging market 18 20 17 15 14 11 69 76 53 50 53 42
economies
Notes: Averages for country groupings are arithmetic. Data for Turkmenistan not available.
__________________________________________________________________________________________
Georgia and Ukraine experienced the highest reduction, ranging from 13 percentage
points to 18 percentage points. Within the group of new EU Member States, Hungary had the
most significant decrease of 22 percentage points.
While the cost of starting a business in emerging market economies has been
decreasing recently, in 2008 it still remained almost four times higher than that in selected
developed market economies (11 as opposed to 3 per cent of per capita GNI). The differences
among countries are, however, considerable. In 2008, companies in South-East European
countries incurred the highest cost, where on average an equivalent of 14 per cent of per
capita GNI had to be spent. This figure was lower in new EU members – about 8 per cent and
close to the average for all emerging market economies for EECCA countries (11 per cent).
Table 3 (b) also shows the minimum amount of money that has to be deposited in a
bank account before the registration process can start in accordance with commercial or
company law. Here again the comparison is unfavourable for entrepreneurs in emerging
market countries. Starting up a company in the developed countries is considerably cheaper.
In 2003, the minimum amount required in the selected market economies was on average
more than twice as low as that in emerging market economies. In the period from 2003 to
2008, in both groups of countries, this amount tended to drop. In the selected OECD
economies, however, the decrease was much steeper than in emerging market countries. In the
first group, the minimal capital required to be deposited in the bank account dropped more
than threefold, from 31 to 9 per cent of GNI per capita, while in the second group it decreased
by 40 per cent (from 69 to 42 per cent). As a result, the gap between the selected OECD
economies and emerging market countries widened even more; in the latter group,
entrepreneurs had to deposit the amount of money four to five times higher than in the former.
The overall drop in minimal capital requirements in emerging market economies

disguises important divergences among country groups. While countries of South-East
Europe witnessed a steep drop from 120 per cent of GNI per capita in 2003 to 17 per cent in
2008, the new EU members experienced a 30 per cent decrease (from 78 per cent to 54 per
cent of per capita GNI). In contrast, in EECCA countries this indicator tended to grow and in
2008 reached 56 per cent of GNI per capita as opposed to 35 per cent in 2003.
We can also see important differences among countries. While in Armenia,

Azerbaijan, the former Yugoslav Republic of Macedonia, Georgia, Montenegro, Kyrgyzstan
and Romania the capital requirements were either equal to or close to zero, in Poland,
Tajikistan and Ukraine they ranged from 197 to 311 per cent of GNI per capita. At the same
time, according to the World Bank, over the last five years in some countries, e.g. Ukraine,
Romania, Slovenia and Uzbekistan, the minimum capital requirements increased, while in
others – Bosnia and Herzegovina, Bulgaria, Georgia and the former Yugoslav Republic of
Macedonia – they fell significantly.
In summary, one cannot deny that in emerging market countries, an entrepreneur

generally has to go through more procedures when registering a company, and the procedures
take more time and are relatively more costly than when a similar undertaking takes place in a
developed market economy.
__________________________________________________________________________________________
In Ukraine, for example, according to the International Finance Corporation, the time
required for registering a company dropped from an average of 8 weeks in 2003 to 4.5 weeks
in 2004 after the enactment of the Law of Ukraine on the State Registration of Businesses–
Legal Entities and Individual Entrepreneurs.16 In 2006, an entrepreneur wanting to register a
company had to cope with 10 different procedures. This took at least 33 days and cost a total
of USD 140, which equalled almost 9.2 per cent of the Ukrainian GNI per capita. Moreover,
the entrepreneur had to deposit as much as USD 3,022 (an equivalent of 199 per cent of the
GNI per capita). In the United States, by contrast, in the same year there were only five
procedures to go through, which could be handled within one week and which cost an
entrepreneur USD 306, that is, less than 0.7 per cent of the GNI per capita, while no minimum
capital deposit was required. 17
(c) Permits and licences
One of the administrative instruments used by the State to regulate the market entry of
business operators is the issue of various permits and licenses. In most countries, the permits
required to start a business include the so-called environmental permits, 18 as well as permits
issued by the Fire Inspection, Sanitary and Epidemiological Service and the Labour Detection
Department. Depending on the country, these permits may or may not be free of charge. 19
To compare the impact of permits and licensing on enterprises across countries, the
World Bank has introduced an indicator to measure the time spent on each procedure required
to build a warehouse. The procedures include obtaining the necessary licenses and permits,
completing the required notifications and inspections, and obtaining utility connections.
According to the World Bank survey, in 2006 the average number of days required to
build a warehouse in an emerging market country was about 245. As compared with 2005,
this indicator dropped in many countries: the number of days required to make the warehouse
functioning declined in Latvia from 160 to 152, in Georgia from 282 to 137, in Armenia from
176 to 112, in the Ukraine from 265 to 242, in Bulgaria from 242 to 226, in Romania from
291 to 242, and in Bosnia and Herzegovina from 482 to 467 days. In the rest of emerging
market countries surveyed this indicator did not change, with the exception of the Republic of
Moldova, where the number of days required to build a warehouse increased by 30 per cent. 20
2. Operational enterprises
The main administrative barriers facing already existing or operational small

companies are the reporting requirements, government inspections, tax administration, import
and export licensing and procedures, foreign exchange procedures, product certification and
16
IFC, Business Environment in Ukraine, “Annual survey of the business environment in Ukraine”, 2005.
17
World Bank, Doing Business: http://rru.worldbank.org/doingbusiness/.
18
Through environmental permits the regulatory authorities impose legally-binding requirements on enterprises in order to
protect human health and the environment. The permits establish limits for pollutant emissions into air and water, and
stipulate other environmental requirements, e.g. those related to the generation and management of waste (OECD,
“Integrated Environment Permitting Guidelines for EECCA Countries”, 2005, p.23).
www.oecd.org/dataoecd/54/31/35056678.pdf
19
Ibid.
20
World Bank, “Doing Business 2008”.
__________________________________________________________________________________________
labour regulations. 21 Such “red tape” slows down business responsiveness, diverts resources
away from productive investment, reduces transparency and accountability, impedes entry to
markets, reduces innovation and job creation, and discourages business efficiency. 22 A 2004
report by the Government of the Netherlands estimated that the yearly losses caused by
obstacles to enterprise operation in Europe were equivalent to more than 3 per cent of
Europe’s GDP. SMEs spend about 9 per cent of their earnings on conforming with legal
reporting requirements, while large companies spend 1 per cent. 23
Administrative barriers to enterprise operation exist in both developed and emerging

market countries. The OECD report produced in 2003, stated that in many cases Governments
continued to lack “a detailed understanding of the extent of the burdens imposed on
businesses and citizens. This means that policy is made in an information vacuum, and that
the size of the actual burdens (as well as progresses and setbacks in reducing them) may
remain unappreciated”. 24 There is a shared view also that the losses incurred by
administrative barriers in emerging market economies are higher than in developed. 25
The legal bases for enterprise inspections remain complex, spanning multiple
jurisdictions and government bodies. In many of emerging market economies, the inspections
of enterprises by government agencies historically have been regulated by separate legislative
acts and have been conducted by various ministries or similar bodies. For example, the laws
on fire safety, on labour protection, on sanitary and epidemiological safety, environmental
protection and similar stipulate the existence of specific regulatory agencies having the right
to conduct inspections of enterprises, often without defining the exact limits or scope of such
inspections. The contradictory legal basis results in overlapping regulatory functions and non-
transparent procedures, so that a business operator can be inspected any number of times by
different agencies, for reasons that are not necessarily communicated to the company.
An enterprise survey conducted in Belarus in 2006 by the Institute of Privatization and

Management (IPM) Research Centre, an NGO located in Minsk, showed that on average one
control organization checked an enterprise more than once a year, and each enterprise was
checked by more than one organization. The same survey concluded that one of the main
problems of business environment was heavy fines for violations of rules and regulations.26
A similar survey conducted in 2005-2007 showed that the average number of inspections
hosted by a company decreased from 10 in 2004 to 4 in 2006, while the duration of
inspections went down from 24 days to 6. This was achieved mainly through reducing the
number of unscheduled inspections. However, according to the International Finance
Corporation (IFC), despite the downward trend, the number of inspections remained high and
they were not always justified. 27
21
Jacobs, S., Coolidge, J., FIAS, “Reducing Administrative Barriers to Investment; Lessons Learned”, 2006.
22
From Red Tape to Smart Tape Synthesis Report: Administrative Simplification in OECD Countries, 2003, OECD,
“Science & Information Technology”, September 2004, Volume 2003, No.5, pp.13-74.
23
“Fostering Growth by Reducing Administrative Burdens”, Informal Ecofin during Dutch EU Presidency, 10-11 September
2004.
24
From Red Tape to Smart Tape Synthesis Report ………
25
Jacobs, S., Coolidge, J., FIAS, “Reducing Administrative Barriers …………
26
IPM Research Centre, “Small and Medium Business in Belarus; Quarterly Review”, 2006, 1Q.
27
IPM Research Centre, “Small and Medium Business in Belarus; Quarterly Review”, 2008, IQ.
__________________________________________________________________________________________
Certification criteria often vary across jurisdictions and this forces companies (in
particular those involved in foreign trade) to go through a number of repetitive certification
steps. According to a report by the European Business Association (EBA), the majority of
companies importing raw materials, products or equipment to Ukraine, have to recertify them
in the State Centre for Standardization, Metrology and Certification, despite the fact that these
products have already been certified abroad under the International Organization for
Standardization (ISO), Council of Europe (CE), European Committee for Standardization
(CEN) or Union Network International (UNI). The Ukrainian State Committee for the issues
of technical regulation and consumption policies requires a full list of documents, studies and
tests to be completed. 28
3. Recommendations by International Organizations and Government Action
To deal with administrative barriers to entrepreneurship, emerging market economies

follow largely similar policies drawing on existing good practices as well as on
recommendations of international organizations. They focus on streamlining the legislative
basis for enterprise registration and operation, simplifying the procedures to follow and
decreasing their number, reducing the amount of time required for entrepreneurs to start
operations, lowering the financial burden associated with enterprise establishment and
alleviating the supervisory burden incurred by the already operational enterprises.
Highlighting the major directions of work in this area, the World Bank and the
European Commission have drawn up some recommendations for reform (see boxes 2 and 3).
Many emerging market economies are currently following those recommendations in practice.
Several Governments have focused on streamlining and harmonizing the regulations

which determine the registration, operation and liquidation of enterprises (Albania, Belarus,
Croatia, Kazakhstan, Moldova, the Russian Federation, Tajikistan, Ukraine, Uzbekistan),
simplifying the procedures to follow and reducing their number (Belarus, Kazakhstan, the
former Serbia and Montenegro, Uzbekistan) and introducing the single window approach for
start-ups (Lithuania, Romania, Russian Federation, the former Yugoslav Republic of
Macedonia, Ukraine and Uzbekistan).
In the Republic of Moldova the Government, in cooperation with the private sector,
has reviewed as many as 1000 relevant laws and regulations, and has repealed 100 and
revised 200 of them to render them more conducive to entrepreneurship. 29
28
European Business Association, “Barriers to Investment in Ukraine”, 2006.
29
ECE/CECI/2007/5, p.3.
__________________________________________________________________________________________
Box 2
World Bank: six business registration reform points
• Create single access points for business. An entrepreneur should be able to abide by all the
registration requirements and contact representatives from various government bodies in a
single agency. This is already the case in Romania, for example, where only five steps are
necessary for registration, less than in an average OECD high-income country.
• Standardize paperwork. Standard forms make the processing for entrepreneurs as well as
the registry easier, and legal or notary services usually become redundant.
• Get out of the courts. Business registration generally should not involve notaries or judges.
Simple procedures, as the verification of signatures could be done by public administrators.
• Make registration electronic. Information on the registration process should be available

on-line via comprehensive websites. These should provide exhaustive information on the
required registration steps, documents and costs involved. The same Internet sites should be
used to file registrations.
• Introduce temporary business licences. Temporary licenses could facilitate the prompt
operations’ start for entrepreneurs in ‘standard’ circumstances before the final license is
approved.
• Impose a “silence is consent” rule in business registration. Deadlines for government

agencies’ processing of business registration requests should be shortened and once the
deadline is over, the enterprise should automatically be considered as registered. In 2006, in
Armenia and Georgia, which use this rule, business registration took fewer days than in other
emerging market countries – 24 and 16, as compared with 32 days on average.
Source: World Bank, “Doing Business 2005: Removing Obstacles to Growth”, Oxford University Press (Washington D.C.),
2005, pp. 21-23.
In 2005, Slovenia initiated one-stop shops aimed at simplifying the process of drafting
statutory documents. In particular, these shops cover a part of advisory costs associated with
the establishment of an enterprise. 30 Several countries (e.g. Bosnia and Herzegovina and
Romania) have eliminated the mandatory use of services of both notaries and judges in the
process of registration.
Croatia, the Republic of Moldova and Serbia have introduced electronic systems of
company registration that have significantly reduced delays. Croatia has also adopted and
implemented legislation on the use of electronic signature. Montenegro and Serbia currently
apply the “silence is consent” rule to the company registration process.
30
OECD, “Promoting Entrepreneurship in South Eastern Europe: Policies and Tools”, Paris, 2007, Vol.6, Iss.12.
www.oecd.org/document/55/0,3343,en_2649_201185_40373175_1_1_1_1,00.html
__________________________________________________________________________________________
Box 3
European Commission: recommendations and guidelines
The European Council has invited the Member States to ensure that:
• Start-up fees are low, reflecting only administrative costs.
• One-stop shops for start-ups enable companies to fulfil regulatory obligations (including VAT
registration) in a single location and/or electronically.
• Administration relating to the recruitment of the first employee can be done through a single
contact point.
• Entrepreneurship education is included in school curricula.
Source: European Commission, Annual Progress Report on Growth and Jobs, Brussels, “A year of deliver”, 2006, p.13.
The system of enterprise permits and licensing in emerging market countries is also
becoming more simplified. For example, a new Ukrainian law on business permits, which
came into force in January 2006, harmonized all regulations pertaining to operational permits
and is expected to facilitate the new business start-ups. Serbia and the former Yugoslav
Republic of Macedonia have eliminated the requirement of a general business permit for most
business activities that carry no significant environmental, health or security risks.
Along the same lines, Uzbekistan has reduced the list of publicly issued permits,
extended to five years the minimum term for licence validity, and approved the list of
activities licensed for an indefinite term. At the same time, the new system of business
registration shortened the delay in obtaining a permit from an average of 1.5 weeks to just 2
days. An enterprise survey conducted in Uzbekistan by IFC in early 2006 showed that as
much as 19 per cent of the SMEs surveyed benefited from the abolition of 12 permits.
According to the IFC estimate, as a result of these measures enterprises could gain an extra
income of at least USD 5.2 million per year. 31
In 2008, a Presidential Decree asked the Government of the Russian Federation to

draft laws that would (a) reduce the number of documents to be submitted when registering an
enterprise, (b) simplify registration and (c) replace the licensing of certain types of activities
by a mandatory insurance of enterprise responsibility or financial guarantees. 32
According to the 2008 Doing Business report, in 2005 getting a construction permit
for a commercial warehouse in Tbilisi required 29 different procedures. Since then, the
Government of Georgia has cancelled many of the approvals required to obtain a construction
permit. It has introduced a one-stop shop for licensing, a “silence is consent” rule and
statutory time limits for the consideration of a demand. As a result, in 2006 the number of
31
IFC, Business Environment in Uzbekistan, “Annual Survey of the business environment in Uzbekistan”, 2004. This
survey was conducted in January–February 2006 by the IFC’s Uzbekistan SME Policy Project. It covered about 2,500 small
business legal entities, and 400 individual entrepreneurs from all sectors of the economy in all regions of the country.
http://www.ifc.org/ifcext/uzbeksme.nsf/AttachmentsByTitle/SME_chapters_2005_eng/$FILE/SME_chapters_2005_eng.pdf
32
Official Website of the Yaroslavl Region, www.adm.yar.ru/a_center/admref/doky/ukaz_797.htm
__________________________________________________________________________________________
procedures needed to build a warehouse dropped to 12 and the time required fell by nearly 3
months. The approval process for building a warehouse in Georgia is now reported to be more
efficient than in all EU countries except Denmark. Over the same period, the number of
activities requiring licensing dropped from 909 to 159. 33
In Belarus, an enterprise survey conducted by IFC in 2005 revealed that a shortened

processing was the most important result of a regulatory reform in the sphere of licensing.
The duration of processing dropped from an average of 45 working days in 2004 to 27
working days in 2005. 34 In Tajikistan, a new law on licensing adopted in 2004 replaced over
800 normative acts regulating licensing procedures.
The removal of regulatory barriers to enterprise operation has been under way in the
developed countries over decades and this process continues. In the United Kingdom, for
example, in order to ease the controlling burden of the State, the threshold for company
account audit has been raised from £1 million to £5.6 million. 35 The Governments of a
number of emerging market economies have also recently focused their efforts on alleviating
the administrative burden on operational enterprises.
Several Central Asian countries, including Tajikistan and Uzbekistan, have

streamlined the system of enterprise inspections and improved coordination between tax
institutions. 36 The average number of days inspectors spend surveying the companies has
decreased in these countries and fewer SMEs are being examined annually. In Uzbekistan,
during the period from 2001 to 2005, the average number of inspections that business
operators faced each year fell from 6.2 to 0.9, whereas the share of inspected SMEs decreased
from 89 per cent to 22 per cent. IFC experts estimate the potential annual positive effect from
implementing these legislative measures at approximately USD 21 million in terms of accrued
cost efficiency in the SME sector.
In 2005, the Government of Belarus modified the procedures of SME inspections,

whereby the overall number of inspections was reduced by about 30 per cent. Reportedly,
owing to better coordination of inspecting agencies, the average number of inspections per
firm fell from 10 in 2004 to 7 in 2005, and the time SMEs spent on dealing with inspectors
dropped from 24 to 10 days per year. In 2003, in Georgia, SMEs on average went through
2.5 inspections, and at that time this was one of the lowest indicators in the region.
The above-mentioned 2008 Presidential Decree in the Russian Federation required the
Government to draft laws that would (a) reduce the number of government inspections of
operational enterprises to one every three years, (b) strengthen the legal guarantees for
enterprises facing the controlling government bodies and (c) facilitate the leasing and buy-
outs of premises used by SMEs for entrepreneurial purposes. 37
33
34
IFC, Business Environment in Belarus, “Annual survey of the business environment in Belarus”, 2005.
http://www.ifc.org/ifcext/belarus.nsf/AttachmentsByTitle/bulletinSMBeng23/$FILE/bulletinSMBeng23.pdf
35
Turner, Mark, 2007, “Barriers to Enterprise Development”. Paper presented at the UNECE International Conference on
Reducing Barriers to Entrepreneurship and Encouraging Enterprise Development: Policy Options, Geneva, 18–19 June 2007.
36
IFC, Business Environment in Uzbekistan, “Annual Survey of the business environment in Uzbekistan”, 2004.
http://www.ifc.org/ifcext/uzbeksme.nsf/AttachmentsByTitle/SME_chapters_2005_eng/$FILE/SME_chapters_2005_eng.pdf
Tajikistan: Draft Law on Inspections, adopted by Lower House on May 31st 2006.
37
Official Website of the Yaroslavl Region. www.adm.yar.ru/a_center/admref/doky/ukaz_797.htm
__________________________________________________________________________________________
The Foreign Investment Advisory Service (FIAS) and International Bank for
Reconstruction and Development (IBRD) review conducted in 2006 reported that countries
benefiting from FIAS services had made certain progress in removing administrative barriers
though various initiatives and reforms. 38 FIAS assistance to these countries is described in
box 4.
Box 4
Foreign Investment Advisory Service of the World Bank: reducing barriers to
entrepreneurship and foreign investment
The Foreign Investment Advisory Service of the World Bank (FIAS) assists Governments in
developing the business-enabling environment by removing administrative barriers to investment,
performing diagnostic studies, designing solutions, and helping with monitoring and evaluation of
programme implementation. To this end, FIAS cooperates with other relevant units in the World
Bank Group, including the International Finance Corporation’s Private Enterprise Partnerships and
Facilities. In addition, FIAS cooperates with the World Bank Small and Medium Enterprise
department to prepare manuals and toolkits aimed at reducing administrative barriers, which
entrepreneurs face during the business registration, when obtaining licences and hosting
government inspections. FIAS systematically assesses the effectiveness of projects and fosters the
build up of public-private partnerships for better their monitoring and evaluation.
In Latvia and Romania, for example, FIAS has helped to streamline the business licensing
procedures and to improve the relevant regulations. Advice from that organization has enabled
Croatia, Georgia and the former Yugoslav Republic of Macedonia to improve the business entry
regulations. As a result, the number of procedures that the entrepreneur had to go through and the
time spent on registering the business were reduced.
In Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, and
Serbia, FIAS is currently contributing to enhancing the capacity of Governments to
comprehensively improve the system of governance and regulations. In the former Yugoslav
Republic of Macedonia, it has conducted a technical review of the business registration process,
provided inputs for the corrective Government action (comments on the Company Law and inputs
for the Business Registration Law) and facilitated the collaboration of the main stakeholders. As a
result, during 2004–2006 the number of procedures for business registration were significantly
reduced, while the period for business registration decreased from 48 to 18 days. During the first
nine months of 2006, the number of business registrations processed was 33 per cent higher than
during the previous year.
Source: FIAS, “The Investment Climate Advisory Service”, 2006 Annual Report.
38
IFC, “Annual survey of the business environment in Belarus”, 2005.
__________________________________________________________________________________________
B. Lowering Tax Rates and simplifying the Tax Administration
Both in developed and emerging market economies the issue of taxation is seen as one
of the most important components of the business environment. Governments address both
the problem of tax rates and that of the associated administrative burden, which relate to the
number of taxes paid and the amount of time companies have to spend dealing with tax
obligations. In the European Union countries, reducing the rates of corporate income tax and
the number of taxes paid by companies remains the main direction for reforms in this area.
Simplifying the process of tax payments through electronic filing and reducing their
frequency is another major path for government action. 39
SMEs have traditionally named taxation as one of the most problematic aspects of
their activity. The important effect exercised by taxation on the business environment is
confirmed by the results of both the World Economic Forum Executive Opinion Surveys
conducted in 2005-2006 and 2006-2007 40 and the World Bank Doing Business Survey (2005-
2008). 41 The following two tables illustrate the scores given by the interviewed managers to
taxation in the indicated periods, the lower the score the more serious the associated problem
was considered by the participants. In both surveys, the rankings attributed to taxation were
typically lower than those obtained by the other components of the business environment, e.g.
access to financing or the size of the informal economy. Moreover, this perception of
executives did not vary significantly across country groups.
39
“Fostering Growth by Reducing Administrative Burdens”, Informal Ecofin during Dutch EU Presidency, 10-11 September
2004.
40
The 2005-2006 WEF Survey is based on the responses of 11,232 business executives from 125 countries. World Economic
Forum, “Global Competitiveness Report”, 2006-2007, pp.125-127. The 2006-2007 WEF Survey is based on the responses of
11,127 senior business executives from 127 countries. “Global Competitiveness Report.”, 2007-2008, p.439, 470, 471.
41
World Bank, http://www.doingbusiness.org/
__________________________________________________________________________________________
Table 4(a)
Major factors influencing enterprise operation
in selected countries, 2005-2006
Impact of
Impact of
Availability quality and Scale of
taxation on Access to
of venture other standards informal
enterprise bank loans
capital on enterprise sector
operation
operation
OECD average (indicated countries),
3.4 4.7 5.0 6.2 5.2
of which:
Finland 2.5 5.3 5.4 6.1 5.7
France 2.9 3.8 4.2 6.0 5.3
Germany 3.1 4.5 4.8 6.6 5.0
Japan 3.5 4.0 4.5 6.2 5.2
United Kingdom 4.2 5.5 5.2 6.3 5.0
United States 3.9 5.1 5.6 5.8 4.9
New EU members average,
3.4 3.7 3.5 4.8 4.4
of which:
Bulgaria 2.6 3.2 3.3 3.6 3.2
Czech Republic 2.8 3.1 3.2 5.7 4.9
Estonia 5.0 4.4 4.1 5.2 5.1
Hungary 3.0 3.8 3.8 5.5 3.7
Latvia 3.7 3.6 3.6 4.7 4.2
Lithuania 3.2 3.8 3.5 4.8 5.1
Poland 3.2 3.4 3.8 4.1 3.9
Romania 2.4 3.4 3.0 3.9 4.3
Slovakia 5.5 4.4 3.7 5.5 4.7
Slovenia 2.5 4.2 3.4 5.2 5.1
South-East Europe average,
2.7 3.0 3.0 3.3 3.5
of which:
Albania 2.8 2.8 2.7 2.6 4.4
Bosnia and Herzegovina 2.3 3.2 2.8 3.2 2.8
Croatia 2.9 3.6 3.1 4.1 3.4
The former Yugoslav Republic of 2.8 2.6 3.6 3.6 3.3
Macedonia
Serbia 2.6 3.0 2.8 3.2 3.5
Commonwealth of Independent States
(EECCA) average, 2.9 2.7 3.0 3.5 3.1
of which:
Armenia 3.2 2.1 2.5 3.4 3.2
Azerbaijan 3.6 2.8 3.2 3.7 3.0
Georgia 3.5 2.6 2.5 2.9 3.2
Kazakhstan 3.0 3.4 3.7 4.1 2.8
Kyrgyzstan 2.1 2.1 2.7 3.3 2.0
Rep. of Moldova 2.5 2.5 2.6 3.6 5.0
Russian Federation 2.7 2.7 3.2 3.8 2.5
Tajikistan 3.0 2.8 3.2 3.3 3.5
Ukraine 2.5 3.0 3.2 3.8 2.8
Average of all listed emerging market
3.1 3.2 3.2 4.0 3.7
economies
Source: Global Competitiveness Report 2006-2007, World Economic Forum’s Executives Opinion Survey.
Notes: Averages for country groupings are arithmetic. EECCA average excludes Belarus, Uzbekistan, and Turkmenistan.
__________________________________________________________________________________________
Table 4(b)
Major factors influencing enterprise operation in selected countries,
2006–2007
Impact of taxation on Availability of venture
enterprise operation Access to bank loans capital
OECD average (indicated countries), 3.2 4.6 4.7
of which:
France 2.9 3.8 4.1
Germany 3.1 4.4 4.4
Japan 3.4 3.7 3.9
United Kingdom 3.8 5.3 5.3
United States 3.7 5.1 5.1
New EU members average, 3.4 3.8 3.5
of which:
Bulgaria 3.0 3.6 3.2
Czech Republic 3.0 3.4 3.0
Estonia 5.1 4.6 4.2
Hungary 2.5 3.7 3.4
Latvia 3.6 3.7 3.5
Lithuania 3.3 3.8 3.5
Poland 2.8 3.4 3.6
Romania 2.6 3.3 3.0
Slovakia 5.4 4.4 3.8
Slovenia 2.7 4.2 3.5
South-East Europe (SEE) average, 3.1 3.1 2.8
of which:
Albania 3.1 3.0 2.7
Bosnia and Herzegovina 2.3 2.9 2.7
Croatia 3.0 3.6 3.0
The former Yugoslav Republic of 3.3 n.a. 3.1
Macedonia
Serbia 3.8 2.9 2.7
Commonwealth of Independent 3.1 2.8 2.8
States (EECCA) average,
of which:
Armenia 3.3 2.0 2.1
Azerbaijan 3.6 2.8 3.1
Georgia 4.2 n.a. 2.7
Kazakhstan 3.1 3.6 3.4
Kyrgyzstan 2.5 2.7 2.6
Rep. of Moldova 2.7 2.6 2.3
Russian Federation 2.9 2.8 3.1
Tajikistan 2.9 2.6 2.6
Ukraine 2.4 3.2 3.2
Uzbekistan n.a. 2.7 2.7
Average of all listed emerging
market economies 3.2 3.2 3.0
Source: Global Competitiveness Report 2007-2008, World Economic Forum’s Executives Opinion Survey.
Notes: Averages for country groupings are arithmetic. EECCA average excludes Belarus and Turkmenistan.
__________________________________________________________________________________________
Data on the tax burden for business operators in different countries of the region are
based on the World Bank Doing Business and EBRD-World Bank Enterprise surveys (see
figures 1 and 2 and table 5 (a)). Table 5 (a) shows the taxes that a medium-sized company
must pay or withhold in a given year, as well as the measures of the administrative burden
related to paying taxes. The amount of taxes paid, in particular, consists of profit tax, labour
tax and contributions, and other taxes paid by the enterprise presented as a percentage of
profits. 42
According to the EBRD-World Bank Enterprise Survey, between 2002 and 2005 (see
figures 1 and 2) the percentage of firms which considered the tax administration as a burden
for conducting business decreased in EECCA (CIS) countries (from 60 to less than 50 per
cent) and those of South-East Europe (from about 45 to 42 per cent), although in the eight
new EU Member States this percentage grew slightly, reaching about 50 per cent in 2005.
Figure 1
Percentage of companies that consider tax administration a problem for doing business
Source: “EBRD-World Bank Business Environment and Enterprise Performance Survey”.
1. Tax rates
According to the same survey (see figure 2), between 2002 and 2005 the percentage of
companies perceiving tax rates as a problem dropped in all groups of emerging market
economies (including Turkey). This decrease was the largest for the countries of South-East
Europe (from 65 to about 57 per cent), and more modest in the EECCA (CIS) countries, and
the eight new EU members where this percentage reached 58 and 63 per cent, respectively.
42
The tax burden on enterprises depends not only on statutory tax rates incurred by the latter but is also influenced by the
national definitions of taxable income (national tax bases), which differ among countries. In many cases, the actual amount of
taxes paid to the State is significantly lower than that implied by the statutory rate due to the use of legally acceptable forms
of alleviating taxation. Therefore, the assessments of inter-country differences in the tax burden should be considered as a
first approximation.
__________________________________________________________________________________________
Figure 2
Percentage of companies that consider tax rates a problem for doing business
Source: “EBRD-World Bank Business Environment and Enterprise Performance Survey” (BEEPS).
These findings are complemented by the results of the World Bank Doing Business
Survey, which show that over the period of 2005-2008, in emerging market economies the
taxation rate of medium-sized enterprises (total taxes as a percentage of gross profits)
decreased by 14 percentage points to reach 49 per cent in 2008. This value is close to that in
selected OECD countries where this indicator dropped from 52 to 50 per cent over the same
period. The decrease in the total tax rate was the steepest in the EECCA countries, where on
average it declined by 23 percentage points, while both in new EU members and in the South-
East European countries the drop made up 5 percentage points (see table 5 (a)).
__________________________________________________________________________________________
Table 5(a)
Tax burden of a medium-sized enterprise in its second year of operation, selected
countries, 2005-2008
of which:
Country Total tax rate
(percentage of profit) Labour tax &
Profit tax Contributions Other taxes
2005 2006 2007 2008 2006 2008 2006 2008 2006 2008
OECD average (indicated
countries), 52 50 50 50 22 21 24 23 6 5
of which
Finland 50 48 49 48 17.1 17 29.6 29.7 1.2 1.0
France 68 66 66 66 8.6 8.3 55 52.1 4.7 5.8
Germany 58 51 51 51 24.7 21.6 22.3 21.7 10.1 7.5
Japan 54 51.8 51.8 52 33.4 33.2 14.4 14.5 5.0 4.4
United Kingdom 36 36 36 36 20.5 21.3 10.5 11.3 4.4 3.2
United States 45 45 45 46 26.6 27.1 10 9.6 9.4 9.5
New EU members average, 49 46 46 44 8 9 34 33 4 3
of which:
Bulgaria 44 43 43 37 7 6.6 31.4 26.6 1.9 3.5
Czech Republic 52 49.1 49.1 48.6 0 5.9 40.6 39.5 8.4 3.2
Estonia 51 49.9 49.9 49.2 9.6 9.3 39.7 38.3 0.9 1.6
Hungary 61 55.5 55.5 55.1 7.8 7.9 42.9 39.4 8.6 7.9
Latvia 43 32.6 32.6 32.6 9.1 2.2 28 27.2 5.5 3.3
Lithuania 52 50.2 50.2 48.2 5.9 8.3 36.2 35.2 6.3 4.9
Poland 38 38.1 38.1 38.4 11.5 12.7 25 23.6 1.8 2.1
Romania 58 49.5 49.5 46.9 9 10.9 38.6 33.9 1.1 2.1
Slovakia 51 50.5 50.5 50.5 7.7 9 40.8 39.7 0.4 1.8
Slovenia 39 40 40 39.2 15.6 14.3 19.3 22 4.5 2.9
South-East Europe average, 45 42 42 40 17 14 25 22 4 4
of which
Albania 57 57 57 46.8 16.1 17.7 35.6 24.5 4.0 4.6
Bosnia and Herzegovina 50 44.1 44.1 44.1 26.2 21.5 17.7 17.2 6.5 5.4
Croatia 37 32.5 32.5 32.5 15.4 11.4 20.3 19.4 1.3 1.7
The former Yugoslav Republic
of Macedonia 44 50.4 50.4 49.8 11.5 13.1 30 33.2 2.0 3.5
Montenegro n.a. n.a. 31.6 31.6 7.1 9.3 19.8 20 7.0 2.3
Serbia 39 35.8 35.8 35.8 14.2 11.7 20.8 20.2 3.9 3.9
Commonwealth of
Independent States 85 66 67 62 12 12 32 29 28 22
(EECCA) average,
of which:
Armenia 43 34 34 36.6 18.7 12.1 22.6 23.4 1.2 1.1
Azerbaijan 49 42.1 42.1 30.9 16.9 13.8 25.5 24.8 2.4 2.3
Belarus 186 161 161 144.4 4.2 12.4 45.3 44.1 136.5 87.9
Georgia 60 38.6 38.6 38.6 12.4 14.1 23.2 22.6 2.2 2.0
Kazakhstan 156 39.5 39.5 36.7 21.2 16.1 21.2 17.8 2.7 2.9
Kyrgyzstan 69 67.2 67.2 61.4 3.6 3 27.2 23.7 36.5 34.7
Rep. of Moldova 51 47.7 47.7 44 12.3 10.5 33.8 31.6 2.8 1.9
Russian Federation 69 51.4 51.4 51.4 12.7 14 35.9 31.8 5.5 5.7
Tajikistan n.a. n.a. 82.1 82.2 18.2 17.7 29 28.2 39.9 36.3
Ukraine 61 57.7 57.7 57.3 13.5 12.2 45.4 43.4 1.4 1.8
Uzbekistan 106 119 119 96.3 1.3 1.2 35.9 28.2 85 66.9
Average of all listed 63 52 52 49 11 12 31 28 13 10
emerging market economies

__________________________________________________________________________________________
Despite some reduction in the taxation rate in emerging market countries (measured as a
percentage of company gross profit), the disparity between different groups of emerging
market economies and developed countries persisted.
In 2008, in the new EU members as well as in South-East Europe the ratio of taxes to
the gross profits was on average slightly lower than in the six selected OECD economies:
about 44 and 40 per cent, respectively, against 50 per cent. In contrast and despite a
considerable drop, the total tax rate of medium-sized enterprises in EECCA countries (62 per
cent) remained importantly higher than in the OECD countries. Within this group, at the end
of the period, in Armenia, Azerbaijan, Georgia, Kazakhstan and the Republic of Moldova, the
ratio of taxes to the gross profit ranged between 31 and 44 per cent. In contrast, in several
other EECCA countries – Belarus, Kyrgyzstan, the Russian Federation, Tajikistan, Ukraine
and Uzbekistan – this ratio was higher, exceeding 50 per cent of gross profit.
Since 2006, the data compiled by the World Bank enable a more detailed analysis of
the composition of the tax burden. The latter is broken down into the profit tax, labour tax and
contributions, and other taxes. The data show that in 2008, on average, the profit tax in
emerging market countries was almost twice as low as in the selected developed countries –
12 per cent of gross profit as compared with 21 per cent. In Bulgaria, Czech Republic,
Estonia, Hungary, Latvia, Lithuania, Kyrgyzstan, Montenegro, Slovakia and Uzbekistan,
profit tax was less than 10 per cent. These lower rates seem to be linked to government
policies aimed at fostering entrepreneurship on the one hand and at attracting foreign direct
investment on the other.
By contrast, in 2008, on average, labour taxes and contributions in selected developed

countries were lower than in emerging market countries. With the exception of France (with
labour taxes and contributions reaching 52 per cent of the gross profit), these payments in the
majority of emerging market countries ranged between 30 to 40 per cent of profit to be
contrasted with the 23 per cent OECD average. Belarus and Ukraine, followed by the Czech
Republic, Hungary and Slovakia, single out as countries where the labour taxes and
contributions were particularly high.
Governments of emerging market economies increasingly realize the importance of

reducing the tax burden on enterprises and streamlining the tax administration. With this aim,
in 2005 the Government of Uzbekistan introduced a single tax payment (STP) for small
enterprises that engaged in specific industry and service sectors. A survey conducted by the
International Finance Corporation (IFC) in early 2006 43 showed that more than half of
entrepreneurs believed that the introduction of the STP reduced the effective tax burden – two
of every five respondents noted simpler tax calculation and payment procedures. However,
this innovation was less beneficial for enterprises engaged in several lines of business
activities subject to different taxation rules simultaneously.
Several EECCA countries, for example Belarus and Tajikistan, have adopted new tax
codes that have reduced tax rates as well as the number of taxes to be paid by enterprises. The
Republic of Moldova, after a round of reductions, has brought the corporate income tax to
43
IFC, Business Environment in Uzbekistan, “Annual Survey of the business environment in Uzbekistan”, 2004.
__________________________________________________________________________________________
zero. Reportedly, over the transition period, Ukraine has gradually lowered tax rates and
introduced a simplified taxation system for the private sector. In Belarus a number of recently
adopted regulations are expected to have a positive impact on the enforcement of tax
legislation. 44
2. Number of tax payments
In the period from 2005 to 2008, the total number of tax payments in emerging market
countries on average tended to decrease, from 52 to 48 (see table 5(b)). On these terms, the
new EU members seem to have been closing the gap with the “older” members: in this group
of countries the number of tax payments per year dropped from 33 to 28. In the EECCA
States, this number fell from 72 in 2005 to 61 in 2008. In contrast, the number of taxes
increased in several countries of South-East Europe and it grew from 50 to 55 for the group as
a whole.
Within the new EU members, over the same period Latvia reduced the number of tax
payments almost sixfold, and in 2008 this indicator was lower than that of the United
Kingdom and the United States. The Russian Federation and Kazakhstan saw the most
significant reduction among the EECCA countries: from 74 to 22 and from 34 to 9 payments
per year, respectively. In several other emerging market economies the number of tax
payments tended to grow (e.g. Lithuania, Republic of Moldova, Romania and Serbia).
As a result of these diverging trends, by the end of the reporting period the number of
tax payments incurred by enterprises in emerging market countries (48 on average) was over
three times higher than that in the OECD economies (15). In the new EU members, the
number of tax payments (28) was almost twice as high as that in the selected OECD
economies, in countries of South-East Europe and EECCA this figure exceeded its OECD
counterpart 3.5-fold and fourfold, respectively.
44
The Presidential Decree No.151 dated 15 March 2006, which amends the Presidential Decree No. 673 “On Certain
Measures to Improve the Coordination of Control Activities by Control Agencies and Modify the Procedure for Imposing
Economic Penalties”, dated 15 November 1999; The Presidential Decree No. 419, dated 30 June 2006, “On Additional
Measures to Regulate Taxation”.
__________________________________________________________________________________________
Table 5 (b)
Tax burden of a medium-sized enterprise in its second year of operation, selected
countries, 2005-2008
Country Payments (number) Time (hours)
2005 2006 2007 2008 2005 2006 2007 2008

OECD average (indicated 19 15 15 15 207 230 230 230
countries),
of which:
Finland 19 20 20 20 264 269 269 269
France 33 23 23 23 128 132 132 132
Germany 32 16 16 16 105 196 196 196
Japan 15 13 13 13 315 350 350 350
United Kingdom 7 8 8 8 105 105 105 105
United States 10 10 10 10 325 325 325 325
New EU members average, 33 30 30 28 342 367 367 368
of which:
Bulgaria 27 31 31 17 616 616 616 616
Czech Republic 14 12 12 12 930 930 930 930
Estonia 11 10 10 10 104 81 81 81
Hungary 24 24 24 24 304 340 340 340
Latvia 41 7 7 7 320 320 320 319
Lithuania 13 25 25 24 162 166 166 166
Poland 43 41 41 41 175 418 418 418
Romania 89 96 96 96 188 193 193 202
Slovakia 31 31 31 31 344 344 344 344
Slovenia 34 22 22 22 272 260 260 260
South-East Europe (SEE) 50 51 57 55 167 236 259 259
average,
of which:
Albania 42 44 44 44 240 240 240 240
Bosnia and Herzegovina 73 51 51 51 100 368 368 368
Croatia 39 39 39 28 232 196 196 196
The former Yugoslav 54 55 55 52 96 96 96 96
Republic of Macedonia
Montenegro n.a. n.a. 88 88 n.a. n.a. 372 372
Serbia 41 66 66 66 168 279 279 279
Commonwealth of
Independent States 72 63 62 61 672 712 667 663
(EECCA) average,
of which:
Armenia 50 50 50 50 1'120 1'120 1'120 1'120
Azerbaijan 36 38 38 38 756 1'000 1'000 952
Belarus 125 125 125 125 1'118 1'188 1'188 1'188
Georgia 48 32 32 29 448 387 387 387
Kazakhstan 34 9 9 9 156 271 271 271
Kyrgyzstan 89 75 75 75 204 202 202 202
Rep. of Moldova 44 49 49 49 250 218 218 218
Russian Federation 74 22 22 22 256 448 448 448
Tajikistan n.a. n.a. 54 54 n.a. n.a. 224 224
Ukraine 98 99 99 99 2'185 2'085 2'085 2'085
Uzbekistan 118 130 130 118 152 196 196 196
Average of all listed 52 48 50 48 394 438 431 430
emerging market economies

Notes: Averages for country groupings are arithmetic. Data for Turkmenistan not available. EECCA average excludes
Tajikistan. South-East Europe average excludes Montenegro.
__________________________________________________________________________________________
3. Time needed to comply with taxation requirements
In emerging market countries, in 2006 the average number of hours per year that
companies had to spend to comply with taxation requirements was as high as 438, compared
with 230 in selected OECD countries. The average “compliance time” was the lowest in
countries of South-East Europe (236 hours) and in the new EU members (367 hours). In
EECCA, the average was 712 hours.
Over the period from 2005 to 2008, the average number of hours per year that
companies in emerging market economies had to spend to comply with taxation requirements
increased from 394 to 430 (by 9 per cent). This growth was the highest in the group of South-
East European countries (from 167 to 259 hours or by 55 per cent), and the number of hours
spent per year also increased in the new EU member States (by 8 per cent, from 342 to 368).
In contrast, in the ECCAA economies, this number fell by one per cent (from 672 to 663
hours per year).
Among the EECCA countries, Georgia saw the most significant reduction, with a drop
of 14 per cent, while Croatia had the highest decrease, of 16 per cent, among the South-East
European countries. Over the same period, the Russian Federation experienced the largest
increase in hours per year spent on preparing, filing and paying taxes of 75 per cent, while in
the group of South-East European economies Bosnia and Herzegovina witnessed a 3.7-fold
growth of this indicator.
Over the same period, in the selected OECD countries the average number of hours
spent increased by 11 per cent. As a result, in 2008 the average “compliance time” in
emerging market economies was 87 per cent higher than in selected OECD countries, while in
2005 it had been 90 per cent higher. At the end of the period, in countries of South-East
Europe the average (259) exceeded that of developed economies by 13 per cent while in the
new EU member States (368) by 60 per cent higher.
The gap was the most significant for the group of EECCA countries (663) in which
the average “compliance time” was higher than its counterpart in the selected OECD
economies almost threefold. In 2008, the number of hours spent was particularly high in the
Ukraine (2,085 hours per year), Belarus (1,188), Azerbaijan (952) and the Czech Republic
(930).
In summary, over the period from 2005 – 2008 the emerging market economies as a
group slightly narrowed the gap with the OECD countries in terms of the time required to
comply with taxation requirements. However, this happened against the backdrop of the
growing “compliance time” in several emerging market economies. At the end of the
reporting period, the gap with respect to the reference group of OECD countries remained
particularly large for countries of EECCA.
Despite certain progress in reducing taxation rates for enterprises, the efforts of
Governments to ease the tax burden on enterprises in emerging market economies have not
yet fundamentally changed companies’ perception of taxes as a major burden for doing
business. The large number of national and local taxes, in particular, still represents a major
__________________________________________________________________________________________
hurdle in terms of cumbersome filing requirements. At the same time, the frequently modified
taxation systems do not contribute to the stability and predictability of the business
environment. The results of expert research in this area, therefore, attest to the need for further
aligning the taxation policy in emerging market countries to the requirements of enterprises,
especially SMEs.
C. Securing Financing of Start-Ups and SMEs
Enterprises consider access to finance to be one of the three most important factors
influencing business operations. According to OECD, developed economies do not
experience any “generalized SME financing gap”, and most SMEs are able to obtain
sufficient credit from banks and other credit institutions. 45 In emerging market economies,
however, adequate financing for SMEs is known to be constrained by the perceived high
credit risk by banking institutions. Commercial banks often reject project proposals because
SMEs do not have adequate collateral or sufficiently clear business plans.
Barriers to bank finance are particularly high for those start-ups whose competitive
strength is based on research and development and innovation, because those companies often
lack physical assets which can be used as collateral. In the same way, in some countries of the
region, women entrepreneurs face difficulties in fundraising because they do not have
property of their own to be used as collateral.
Banks in emerging market economies are increasingly providing finance to start-ups

and SMEs. Financial support is also becoming available from other sources, which include
relatives and family savings, networks of business angels, and venture capitalists and equity
markets. The financing of innovation and innovative enterprises is examined in more detail by
the UNECE network of experts on financing for innovative development. 46
Given the weakness of the banking system, Governments, in cooperation with the
private sector, have developed alternative sources of financing for SMEs. Special programmes
have been initiated, for example, in Armenia (Small and Medium Entrepreneurship
Development National Centre), Bulgaria (National Innovation Fund), Kazakhstan (Small
Business Development Fund), Kyrgyzstan (State Fund for SME Support) and Uzbekistan
(Republican Coordination Council for Promotion of SME Development). The Government of
Armenia has set up a programme of loan guarantees focusing on SMEs operating in the
remote regions of the country. In the period from 2004 to 2006, SMEs obtained as many as
126 loan guarantees worth AMD 443.7 million, which ensured a credit portfolio worth AMD
846.9 million. 47
45
OECD, “The SME Financing Gap: Theory and Evidence”, 2006, p.10, 24.
46
See ECE/CECI/FID/2007/2 and the materials of the Applied Policy Seminar on “Early Stage Financing and “Investment
Readiness of Innovative Enterprises” held in Moscow, Russian Federation in May 2008
(http://www.unece.org/ceci/eed.html).
47
UNECE, “Fostering Entrepreneurship in Catching-Up Economies: Major Issues and Challenges”, Discussion Paper
presented at the UNECE International Conference on “Reducing Barriers to Entrepreneurship and Encouraging Enterprise
Development: Policy Options”, Geneva, 18-19 June 2007.
www.unece.org/ceci/documents/2007/eed/discpaper.pdf
__________________________________________________________________________________________
Loan facilities for SMEs, especially those with domestic and foreign participation, are
also being made available by international financial institutions and private funds. For
example, in Kazakhstan major credit lines for SMEs include those provided by the European
Bank for Reconstruction and Development (EBRD) in cooperation with the Kazakh Small
Business Development Fund, as well as credit lines provided by the World Bank (loans to
farmers), the Central Asian – American Enterprise Fund and Asian Development Bank.
1. Banks
In many developed countries, SMEs, unlike large firms, tend to rely more on
commercial bank financing. According to the Bank for International Settlements, in the
second half of the 1990s in developed countries the role of banks in the external financing of
companies was generally higher for SMEs than for large enterprises (table 6). In such
countries as Germany and Italy, for example, the share of banks in the external financing of
SMEs was around 64 per cent, as compared with around 30 per cent for large enterprises.
Table 6
Share of bank loans in the total value of external funding of small and large companies,
selected developed market economies, mid- to late 1990s
(Percentage)
Country Year Bank loans/Total loans
Small companies Large companies

Belgium 1998 42.2 50.1
Canada 1996 53.1 n.a.
France 1998 44.3 21.2
Germany 1998 64.1 29.9
Italy 1998 64.6 27.3
Japan 1995 28.2 33.2
Netherlands 1998 54.9a 35.9
United States 1995 40.9 7.9b
a
Includes medium-sized companies.
b
Medium-sized companies.
Source: Bank of Company Accounts Harmonised (BACH). For Canada: “What’s New in Debt Financing for Small and
Medium-sized Enterprises”, The Conference Board of Canada, 1997.
In emerging market countries, it is more difficult for SMEs to access commercial bank
resources than in developed market economies. Barriers to bank finance are especially high
for so-called “innovative start-ups”, which try to commercialize the results of their research
and development. According to the EBRD - World Bank Survey, in 2005 internal funds and
retained earnings made up between 60 and 80 per cent of the overall enterprise investment in
emerging market countries, while the so-called formal borrowing (which proxies the bank
loans) amounted to less than 20 per cent (see figure 3).
__________________________________________________________________________________________
Figure 3
Surveyed company investment by source
(Percentage)
Source: “EBRD-World Bank Business Environment and Enterprise Performance Survey (BEEPS).
http://siteresources.worldbank.org/INTECAREGTOPANTCOR/Resources/BAAGREV20060208ECA.pdf
The same source shows a decrease between 2002 and 2005 in the percentage of
interviewed companies which considered access to financing a problem (lack of collateral or
financing not available) in all groups of emerging market countries (most importantly in
EECCA). In 2005, the indicated percentage made up about 40 in both the eight new EU
members and in EECCA countries, while in the States of South-East Europe, it was about 44
per cent (see figure 4).
__________________________________________________________________________________________
Figure 4
Percentage of companies that consider access to financing
a problem for doing business
Source: “EBRD-World Bank Business Environment and Enterprise Performance Survey” (BEEPS).
During the same period, the time required for companies to negotiate a loan with a
bank decreased considerably in countries of South-East Europe (from 34 to 26 days) and the
new eight EU member States (from 28 to 24). In contrast, in the EECCA countries this
number increased from about 17 to 20. The percentage of companies considering the cost of
financing a problem for doing business dropped mostly in the new EU members, while in the
other groups of emerging market economies the reduction was smaller. In 2005, the indicated
percentage made up about 46 in the eight new EU member States, about 50 in the countries of
EECCA and about 55 per cent in countries of South-East Europe. 48
According to the WEF Survey, in 2006 business persons in South-East Europe and
EECCA found it more difficult to obtain a bank loan without collateral as compared with their
counterparts from developed market economies. Of the total score of 7 (loan easily obtainable
with a good business plan), entrepreneurs from the new EU countries reported a score of 3.7,
while those from South-East Europe and the EECCA reported 3.0 and 2.7 respectively. In
contrast, company managers in all of the selected OECD countries scored this opportunity at
4.7 points. In 2004, half of the SMEs in Bulgaria never applied for a loan, and as few as 13
per cent of submitted projects were accepted by commercial banks. 49
2. Leasing
Both in developed and emerging market economies, leasing has become an important
source of medium and long-term enterprise finance. In Bulgaria, for example, in 2004 as
48
World Bank, “Europe and Central Asia BEEPS-at-a-Glance”, 2006.
http://siteresources.worldbank.org/INTECAREGTOPANTCOR/Resources/BAAGREV20060208ECA.pdf
49
UNECE, “Fostering Entrepreneurship in Catching-Up Economies: Major Issues and Challenges”…, p. 18.
__________________________________________________________________________________________
many as 28 per cent of SMEs used a bank credit line and 20 per cent leases, the latter
becoming in certain respects a competitor to bank lending.
Over the past three years, countries of Central Asia (Kazakhstan, Kyrgyzstan,
Tajikistan and Uzbekistan) introduced a number of laws and taxation rules making the leasing
operation more attractive for domestic and foreign investors. In 2004, Kazakh companies
concluded leasing agreements worth USD 172.2 million, which represents a twofold growth
over 2003. By 2006-2007, the volume of leasing was expected to increase to over USD 600
million. In 2004, in Uzbekistan the value of leasing agreements by SMEs grew to more than
USD 40 million and in Azerbaijan in the same year it was as high as USD 7.2 million. 50
Recently, leasing operations have also been developing in Kyrgyzstan and Tajikistan,
where the number of banks engaged in leasing and leasing companies have grown. Further
development of this market will depend on creating a more favourable tax environment for
leasing.
The international financial institutions contribute to capacity-building for leasing. In

particular, the Central Asia Leasing Facility, established by IFC for 2005-2008 and funded by
the Swiss Secretariat for Economic Affairs (SECO), aims at facilitating the leasing operation
for SMEs in Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. The Facility is
expected to strengthen the capacity of local financial institutions in leasing operations by
assisting them with organizational restructuring, credit analysis and risk management training,
and upgrading of their management information and internal audit systems. 51
3. Microfinancing
Microfinance is a financial service provided to SMEs and individuals having limited

access to conventional banking services. This method of debt financing is increasingly
common in emerging market economies, in particular in the Russian Federation, where
surveys attest to a growth of this market segment. Microfinancing has gradually become part
of the country’s financial system, complementing conventional banking and providing access
to loans for those companies and consumers who do not meet commercial bank requirements.
In 2003- 2004, the volume of micro-credit loans to SMEs grew by 50 per cent and the number
of borrowers by one third. According to a sample survey conducted in early 2005, as many as
60 per cent of micro loans were intended for business purposes and 80 per cent of those were
short-term. 52
In 2004, Tajikistan adopted a new microfinance legislation, which aimed at creating

an enabling legal and regulatory framework for this sector. In particular, the law permitted the
microfinance companies to attract additional financing from donor organizations and private
investors, thus enhancing their lending capacity.
50
IFC, “IFC Launches Central Asia Leasing Facility’s Swiss funded Technical Assistance”, January 2006.
http://www.ifc.org/ifcext/pressroom/ifcpressroom.nsf/PressRelease?openform&6408159D7997267D852570EC005540A1
51
Ibid.
52
The list of respondents surveyed in the second round included more than 400 institutions, associations, unions and
networks in 54 regions of the Russian Federation. (The Microfinance Gateway “Non-bank Microfinance Development
Trends in Russia in 2003-2004” Analytical paper was produced by the Russian SME Resource Centre jointly with the
Russian Microfinance Centre.)
__________________________________________________________________________________________
Along the same lines, Georgia has undertaken to establish a legislative and regulatory
framework for the activities of non-bank depository institutions (credit unions), which are a
potential source of micro-financing for SMEs. In 2005, as many as 43 credit unions were
licensed in Georgia and reportedly 40 per cent of SMEs were aware of the availability of
micro-financing facilities. 53
The UNECE International Conference on Reducing Barriers to Entrepreneurship and

Encouraging Enterprise Development recommended that Governments, in consultation with
banking institutions, should design measures to facilitate the access of SMEs to bank finance,
in particular special credit schemes for long-term investment financing with prolonged grace
periods, loan guarantees provided via public-private SME-focused programmes, and more
favourable collateral acceptance rules (see chapter 3).
Governments were also advised, drawing on assistance from international financial

institutions, to develop alternative forms of funding for start-ups and SMEs, in particular
financing from specialized public-private funds, leasing, micro-financing, etc., as well as to
support the “investment readiness” of enterprises through training and other awareness-raising
initiatives that enhance their ability to attract finance.
D. Reducing Obstacles to SME Expansion Abroad
Foreign expansion of enterprises in general and SMEs in particular is one of the

prerequisites for enhanced economic efficiency in today’s global economy. At the same time,
surveys by international organizations, OECD in particular, show that SMEs are
underrepresented in the internationalized sector of the economy, and, more specifically, in
international trade. Equally, as a result of liberalization of trade and investment, they face
growing competition in their local markets.
Numerous barriers hinder SMEs from exporting and investing abroad. These relate
both to internal weaknesses of enterprises and to the external conditions of their operation.
The former include inadequate access to financing and shortage of working capital,
insufficient information on business opportunities and markets abroad, and lack of
communication with potential customers, while the latter include home and host country
regulations unfavourable to exporting, importing and cross-border investment, and the lack of
relevant incentives from Governments.
The OECD – Asia-Pacific Economic Cooperation (APEC) Member Policy Makers

Survey and the Survey of SME’s Perceptions of Barriers to Access to International Markets
conducted in 2006 showed that generally firms that had experience of operating abroad
ranked barriers specific to the external business and competitive environment higher than
firms with no international experience. In contrast, SMEs new to international operations
attributed high value to information on markets, opportunities and challenges. Results of the
Survey also attested to the importance of promoting SME participation in global value chains
and clustering as a means of overcoming trade barriers. 54
53
IFC, Business Environment in Georgia, “Annual survey of the business environment in Georgia”, 2004.
54
Replies to the first survey were provided by policymakers from 38 countries including from 5 emerging market economies
(Czech Republic, Hungary, Poland, Romania, and Slovakia). The second survey covered as many as 978 SMEs from 47
__________________________________________________________________________________________
Throughout the UNECE region, government regulations that companies have to apply
when operating outside their home markets are complex and tend to change frequently. To
address this issue, in the United Kingdom, for example, all changes in regulations enter into
force only twice a year. This significantly reduces the amount of time required to find out
which of them apply at any given moment. The Government has also created an online trade
“single window”, which integrates information provided by the relevant departments
(Revenue and Customs, Trade and Industry, and Environment). Along the same lines, in
Sweden a one-stop information centre has been set up to provide access to information on
Swedish trade rules and regulations to potential exporters from developing countries.
Several emerging market economies have also promoted enterprise cluster

development at regional, interregional and cross-border levels, as well as SME participation
in global value chains. In 2000, in the context of its industrial policy Slovenia established the
Cluster Programme encouraging SMEs to participate in transborder supply chains and clusters
(see box 5). Similarly, the Czech Republic offers financial grants to create an infrastructure
enabling the establishment of regional and cross-border clusters, including those with foreign
partners. This programme launched in 2004-2006 is 75 per cent financially supported by the
EU structural funds. 55
In Latvia, since 2000 industrial policy has increasingly focused on clustering as a tool
for improving industrial competitiveness. Through enhanced public-private cooperation, the
Government seeks to directly support clusters in the regions that have been found promising
in terms of their competitive advantages and technological potential. Similarly, under the EU
PHARE programme, Latvia has started a national cluster programme “Support to Industrial
Cluster Restructuring”, which is financed by the EU and the Government. The programme
supports clustering in the sectors of forestry, information technology, engineering and high-
technology (biotechnology, nanotechnology, robotics). The Government facilitates the
creation of adequate business infrastructure, international patenting by SMEs, marketing of
national products and exports, and promotes strengthened collaboration between enterprises
and science and education centres.
In Hungary, the Ministry of Economy and Transport, in collaboration with regional

Governments, has developed the “Széchenyi Plan” - a clustering programme, in which the
Government provides support both financial and in kind to newly formed clusters, specifically
targeting housing and road construction, development of tourism, research and development,
and infrastructure development. One of the objectives of the programme has been to
strengthen the innovative capacity of subcontractors of multinationals. It has provided
enterprises with financial subsidies and information services, and rented out office space and
production sites.
economies, including 71 firms from Albania, Czech Republic, Hungary, Poland, Romania, the Russian Federation, Slovak
Republic, and the Ukraine.(www.unece.org/ceci/ppt_presentations/2007/eed/fliess.pdf)
55
Innovating Regions in Europe. “Regional clustering and networking as innovation drivers.” Learning Module 3. 2005. p.
13-15
__________________________________________________________________________________________
Box 5
Slovenia: clustering as an instrument of SME expansion abroad
Slow growth of Slovenian SME operation abroad has been a major impediment to the
expansion of the private sector in that country. To remedy this situation, in the context of its industrial
policy the Ministry of Economic Affairs in Slovenia has established a Cluster Programme. The main
objective of this programme is to raise awareness of SMEs of potential benefits of participating in
transnational supply chains and transborder clustering, and encourage that participation through
financial support.
In 2000, the Ministry of Economy initiated a pilot programme of cluster development, and in
2002 as many as 15 cluster projects were launched in the automotive industry, engineering,
manufacture of plastics, transport and logistics, while 8 of those received some financial support from
the Government. Lessons learned from the operation of the pilot projects provided important feedback
for the Government support to expanding clustering across the border.
Based on the experiences gained in the pilot programme, the Ministry of Economic Affairs
has designed an outline of the cluster development process (Slovenian model), which includes three
stages - initiation, early growth and dynamic growth. In the initiation stage, the stakeholders develop
the concept of the cluster. The early growth period is mainly focused on building and strengthening
the information technology and organisational platforms needed for the dynamic growth phase. In this
final phase activities focus on building an innovative environment and developing the cluster’s
competitive strength on the world market.
In 2003, out of 30 applicants nine were selected for the initiation phase and five for the early
growth phase. With the assistance from the Government, Slovenian SMEs develop cooperation links
with clusters in Italy, Austria and Germany. This process is facilitated by the participation of
international stakeholders in the sixth European Framework Programme.
Source: Innovating Regions in Europe, “Regional clustering and networking as innovation drivers”, Learning Module 3,
2005, pp.4-6.
In 2001-2002, under the “Széchenyi Plan” the Central Government allocated to

clustering support EUR 1.4 million. One of the favourable spillover results of the programme
was the enhanced capacity of SMEs to cooperate in networks. In 2002, the Széchenyi Plan
came to an end. The support for clusters was then continued in the framework of the
“Technology Development and Innovation Plan”. 56
It was argued at the UNECE International Conference that further assistance to foreign
traders and investors by Governments could focus on providing them with additional
information resources, including measures facilitating the intellectual property rights
protection for SMEs, foreign traders’ innovation and technological capacity, as well as costs
of applying the international standards for exporters.
In the context of facilitating the SME expansion abroad, and in line with the OECD
recommendations, Governments were advised to create mechanisms that facilitate the
participation of SMEs in the trade policy process, assist exporting enterprises in diagnosing
56
Ibid.
__________________________________________________________________________________________
and understanding the business environment they face in host countries, and design
programmes that help firms to overcome trade barriers.
E. Fighting Corruption
When calculating the cost of starting a business, would-be entrepreneurs have to take
into account not only official payments but also unofficial payments that they often have to
make for registering and operating an enterprise. Although the size of such payments differs
from one country to another, they nevertheless add to the difficulties of setting up a business.
As a result, would-be entrepreneurs are often deterred from starting a legal business and may
chose to engage in a non-registered activity in the shadow economy. Such a situation reduces
the taxation base for Governments, undermines the conditions of employees at non-registered
enterprises and also nourishes the fabrication of low-quality products that can be detrimental
to the health of consumers and to the environment. 57
In early 2000, high corruption perceptions in emerging market countries were

supported by company surveys, which signalled that the extortion of illegal payments was
common during business registration. 58 The EBRD-World Business Environment and
Enterprise Performance Survey (BEEPS) indicates that between 2002 and 2005 the
percentage of firms which considered that the unofficial payments to government officials
were frequent dropped in all groups of emerging market countries (see figure 5). This
decrease was the most important in the eight new EU member States (from 18 to about 10 per
cent), and in the EECCA (CIS) countries and countries of South-East Europe it made up about
2–5 percentage points. In 2005, about a quarter of EECCA and South-East European
companies interviewed considered unofficial payments frequent.
Figure 5
Percentage of companies that consider unofficial payments to be frequent
Source: EBRD-World Bank Business Environment and Enterprise Performance Survey (BEEPS).
57
World Bank, “Doing Business 2007: How to Reform”.
www.doingbusiness.org/documents/EconomyProfile-COMESA.pdf.
58
Johnson, K., McMillan, W., “Why do firms hide? Bribes and unofficial activity after communism”, 2000, Elsevier,
Vol.76(3), p.503.
__________________________________________________________________________________________
Over the same period, bribes as a percentage of the annual sales of companies dropped
significantly in all groups of emerging market countries (see figure 6). In 2005, this
percentage was the lowest in the eight new EU members (about 0.6), and 0.9 and 1.3 in
countries of South-East Europe and EECCA respectively.
Figure 6
Unofficial payments as percentage of company annual sales
The Survey also indicates that between 2002 and 2005 the percentage of companies
believing that corruption was a problem for doing business decreased in all groups of
emerging market economies by 3–5 percentage points (see figure 7). In 2005, the proportion
of companies which were of that opinion, was highest in countries of South-East Europe
(about 47 per cent), while in countries of EECCA and the eight new EU member States the
proportion was lower (about 35 and 32 per cent, respectively).
Figure 7
Percentage of companies that consider corruption a problem for doing business
__________________________________________________________________________________________
The multiple unofficial payments and costs thus incurred by entrepreneurs are also
reflected in the Corruption Perception Index (CPI), which is based on data from a number of
sources and is compiled by the Transparency International (see table 7). This index is based
on seven international surveys of business people, political analysts and the general public in
52 countries, and reflects their perceptions of corruption. The index varies from 0 to 10, and
the higher the index value the lower the perceived corruption.
Table 7
Corruption Perception Index in selected emerging market economies, 2003-2007
2003 2004 2005 2006 2007

OECD average (indicated countries), 7.9 8.0 8.1 8.1 7.9
of which:
Finland 9.7 9.7 9.6 9.6 9.4
France 6.9 7.1 7.5 7.4 7.3
Germany 7.7 8.2 8.2 8.0 7.8
Japan 7.0 6.9 7.3 7.6 7.5
United Kingdom 8.7 8.6 8.6 8.6 8.4
United States 7.5 7.5 7.6 7.3 7.2
New EU members average, 4.3 4.4 4.6 4.8 5.0
of which:
Bulgaria 3.9 4.1 4.0 4.0 4.1
Czech Republic 3.9 4.2 4.3 4.8 5.2
Estonia 5.5 6.0 6.4 6.7 6.5
Hungary 4.8 4.8 5.0 5.2 5.3
Latvia 3.8 4.0 4.2 4.7 4.8
Lithuania 4.7 4.6 4.8 4.8 4.8
Poland 3.6 3.5 3.4 3.7 4.2
Romania 2.8 2.9 3.0 3.1 3.7
Slovakia 3.7 4.0 4.3 4.7 4.9
Slovenia 5.9 6.0 6.1 6.4 6.6
South-East Europe (SEE) average, 2.8 2.9 2.8 2.9 3.4
of which:
Albania 2.5 2.5 2.4 2.6 2.9
Bosnia and Herzegovina 3.3 3.1 2.9 2.9 3.3
Croatia 3.7 3.5 3.4 3.4 4.1
The former Yugoslav Republic of Macedonia 2.3 2.7 2.7 2.7 3.3
Serbia 2.3 2.7 2.8 3.0 3.4
Commonwealth of Independent States (EECCA) average, 2.4 2.4 2.5 2.5 2.6
of which:
Armenia 3.0 3.1 2.9 2.9 3.0
Azerbaijan 1.8 1.9 2.2 2.4 2.1
Belarus 4.2 3.3 2.6 2.1 2.1
Georgia 1.8 2.0 2.3 2.8 3.4
Kazakhstan 2.4 2.2 2.6 2.6 2.1
Kyrgyzstan 2.1 2.2 2.3 2.2 2.1
Rep. of Moldova 2.4 2.3 2.9 3.2 2.8
Russian Federation 2.7 2.8 2.4 2.5 2.3
Tajikistan 1.8 2.0 2.1 2.2 2.1
Turkmenistan n.a 2.0 1.8 2.2 2.0
Ukraine 2.3 2.2 2.6 2.8 2.7
Uzbekistan 2.4 2.3 2.2 2.1 1.7
Average of all listed emerging market economies 3.2 3.3 3.3 3.5 3.7
Source: Transparency International, http://www.transparency.org/

Notes: Averages for country groupings are arithmetic. Country with an index value of 10 is considered “clean” from
corruption, and with the index value of 0 is considered “highly corrupt”. Averages for country groupings are arithmetic.
EECCA average excludes Turkmenistan.
__________________________________________________________________________________________
Over the period from 2003 to 2007, the evolution of the Index attests to a certain
improvement in corruption perceptions in emerging market economies. The CPI value
increased for this group as a whole from 3.2 to 3.7. The steepest growth of this indicator was
observed in the economies of South-East Europe and the new EU members, where it
increased respectively from 2.8 to 3.4 (by 21 per cent) and from 4.3 to 5.0 (by 16 per cent). In
the EECCA countries, the index grew from 2.4 to 2.6, that is by 8 per cent. In individual
countries, the largest increase of approximately 88 per cent was recorded in Georgia, followed
by Serbia with a growth of 48 per cent. At the same time, in some countries, e.g. Belarus,
Kazakhstan, the Russian Federation and Uzbekistan, the index dynamics suggest increased
corruption perceptions.
The data show that by the end of the period, in the emerging market economies, the
index value had been lowest in the EECCA countries and highest in the new EU member
States, with countries of South-East Europe occupying an intermediate position. Looking at
the index values for the developed market economies, one sees that in the same year only Italy
(5.2) and Greece (4.6) of the “old” European Union countries showed values of the corruption
index similar to those of new EU member States taken as a group. In the other developed
market economies, the experts surveyed perceived much lower levels of corruption. In the
same years, the CPI value stood on average at 7.2 in the United States, 7.3 in France, 7.5 in
Japan, 7.8 in Germany, 8.4 in the United Kingdom and 9.4 in Finland.
Recently, the emerging market countries have endeavoured to improve the public
governance overall and intensified their fight against corruption in a number of areas. The
focus of this work has been on law enforcement and institutional reforms aimed at enhancing
the efficiency of law-enforcing agencies and discouraging corruption. To this end, in Belarus,
Ukraine and Kazakhstan comprehensive State programmes have been put in place.
In particular, endeavours by emerging market economy Governments have concerned:

(a) the reform of the judicial system; (b) tax reform; (c) institutional reform, including the
establishment of new anti-corruption advisory bodies; and (d) enhanced accountability of civil
servants.
In restructuring the judicial system, efforts have been made to foster the independence
of courts and prosecute corrupt judges. Reforms in Georgia, Kyrgyzstan, Ukraine and
Kazakhstan have been introduced both to increase the independence of courts and to ensure
adequate remuneration for judges in order to reduce the incentives for bribe taking. 59
Georgia, for example, in 2004–2005 passed two laws as part of a package intended to increase
the independence of magistrates and strengthen the Government’s ability to prosecute judges
infringing the law. 60 One of the new Government’s most important measures for fighting
corruption among civil servants was to raise the salaries of judges.
To make the enforcement of judgements more efficient and reduce the corruption in
the judiciary, in 2006-2007 Bulgaria introduced an institution of private bailiffs, shortening
59
Nikitenko, P., “Enterprises’ Performance in Belarus: Government Efforts to Improve Business Climate”. Paper presented
at the UNECE International Conference on Reducing Barriers to Entrepreneurship and Encouraging Enterprise Development:
Policy Options, Geneva, 18–19 June 2007.
60
Transparency International, Global Corruption Report 2006, Part 2, Country Reports.
__________________________________________________________________________________________
the time to enforce a judgement from 150 to 125 days. It also introduced a system of random
allocation of court cases to judges, doubled judges’ salaries and made the selection and
appointment of judges more transparent. 61
Tax reform has also contributed to reducing the incentives of tax authorities to accept
bribes. Albania, Bosnia and Herzegovina, Georgia, Poland and Slovakia have introduced new
tax systems that intend to contribute to reducing corruption by ensuring greater transparency,
increasing the capacity and incentives for enterprises to pay taxes and limiting tax officials’
ability to abuse their prerogatives and collect bribes. In Georgia, for example, the Tax Code,
revised in December 2004, was intended to reduce corruption by strengthening the incentives
for enterprises to pay taxes. Along the same lines, in Poland an act on freedom of economic
activity, passed in 2004, limited tax officials’ ability to abuse their prerogatives and collect
bribes. Business start-ups now require fewer permits to commence trading, and the law
prevents tax offices from conducting more than one audit at a time, unless an official
investigation is in progress. The latter measure helps to limit the opportunity for the tax
inspectors to extort bribes.
A number of countries, notably Belarus, Kazakhstan, Kyrgyzstan and Ukraine, are

considering simplifying taxation procedures and introducing online systems of interaction
between Government officials and companies in order to reduce possibilities for tax evasion
and bribes.
The reform of institutions has contributed to fighting corruption through establishing

specialized anti-corruption advisory bodies. Croatia has set up a special office for fighting
corruption and organized crime. Georgia has established an anti-corruption working group
composed of Government officials and NGOs with the goal of developing an anti-corruption
strategy. In other countries (e.g. Armenia, Bosnia and Herzegovina, and Serbia) the anti-
corruption activities are coordinated among several ministries, agencies and prosecutors’
offices. In Kazakhstan, the Government has streamlined the functions of enforcement
agencies to avoid duplication in investigating corruption cases. The Agency for Fighting
Economic Crime and Corruption, established in 2005, is responsible for reducing bribe-
taking, acceptance of other illegal benefits, abuse of authority and smuggling related to
business operations. Montenegro’s Ministry of Finance has signed a memorandum of
understanding with business associations to ensure their participation in drafting the relevant
legislation. Along the same lines, two anticorruption institutions have been established in
Kyrgyzstan: National Agency for the Prevention of Corruption (NAPK) and the National
Council to Combat Corruption (NSBK). The latter is functioning as a monitoring agency on a
permanent basis. The results of their work are yet to be assessed.
In Kyrgyzstan, an effort has been made to increase the transparency of operation and
the accountability of civil servants. In 2004, the Parliament adopted a law, according to which
civil servants could be temporarily suspended from duties in case of a conflict of interests
resulting in an improper benefit for a third party. Policies aimed at raising the effectiveness of
civil service include recruitment through competitive exams and continuous professional
training of civil servants. At the same time, the legal requirements to declare incomes by
61
__________________________________________________________________________________________
public officials also have been strengthened in a number of countries. Both in Poland and
Romania, public employees disclosing breaches of the law inside the institutions in which
they worked were provided legal protection.
At the international level, all countries of the UNECE region have become parties to at
least one of the major conventions related to fighting corruption. Table 8 gives an overview of
the status of ratification of major conventions related to fighting corruption. Those include
two conventions under the Council of Europe, one of the OECD, and two of the United
Nations. The United Nations Convention against Corruption was adopted by the General
Assembly of the United Nations on 31 October 2003 and is the most recent of the five
conventions. It has already been ratified by 19 out of 28 emerging market countries listed in
the table. The United Nations Convention against Transnational Organized Crime has
received the largest number of ratifications by the emerging market countries included in the
table.
All the new EU Member States have ratified the Council of Europe Civil Law
Convention on Corruption and the Council of Europe Criminal Law Convention on
Corruption. These two conventions were also ratified by about half of the EECCA countries.
Finally, the OECD Anti-bribery Convention was ratified by 7 of the emerging market
countries, including the Czech Republic, Hungary, Slovakia and Poland, which are OECD
members, and also by Bulgaria, Estonia and Slovenia.
Table 8
_______________________________________________________________________________________________
46
Status of ratification of major international conventions related to fighting corruption
Council of Europe Civil Law Council of Europe Criminal Law OECD Anti- United Nations Convention against United Nations Convention against
Convention on Corruption Convention on Corruption Bribery Convention Corruption Transnational Organized Crime
Signed Ratified Signed Ratified Ratified Signed Ratified Signed Ratified

Central and Eastern Europe and the Baltic States,
of which:
Czech Republic 7/11/2000 24/9/2003 15/10/1999 8/9/2000 21/1/2000 22/04/2005 not ratified 12/12/2000 not ratified
Estonia 24/1/2000 8/12/2000 8/6/2000 6/12/2001 23/11/2004 not signatory not signatory 14/12/2000 10/02/2003
Hungary 15/1/2003 4/12/2003 26/4/1999 22/11/2000 12/04/1998 10/12/2003 19/04/2005 14/12/2000 22/12/2006
Latvia 4/2/2004 12/4/2005 27/1/1999 9/2/2001 not signatory 19/05/2005 4/01/2006 13/12/2000 7/12/2001
Lithuania 18/4/2002 17/1/2003 27/1/1999 8/3/2002 not signatory 10/12/2003 21/12/2006 13/12/2000 9/05/2002
Poland 3/4/2001 11/9/2002 27/1/1999 11/12/2002 9/08/2000 10/12/2003 15/09/2006 12/12/2000 12/11/2001
Slovakia 8/6/2000 21/5/2003 27/1/1999 9/6/2000 24/9/1999 9/12/2003 1/06/2006 14/12/2000 3/12/2003
29/11/
Slovenia 17/3/2003 7/5/1999 12/5/2000 09/06/2001 not signatory not signatory 12/12/2000 21/05/2004
2001
South-East Europe,
of which:
Albania 4/4/2000 21/9/2000 27/1/1999 19/7/2001 not signatory 18/12/2003 25/05/2006 12/12/2000 21/08/2002
Bosnia and
1/3/2000 30/1/2002 1/3/2000 30/1/2002 not signatory 16/09/2005 26/10/2006 12/12/2000 24/04/2002
Herzegovina
Bulgaria 4/11/1999 8/6/2000 27/1/1999 7/11/2001 22/12/1998 10/12/2003 20/09/2006 13/12/2000 5/12/2001
Croatia 2/10/2001 5/6/2003 15/9/1999 8/11/2000 not signatory 10/12/2003 24/04/2005 12/12/2000 24/01/2003
Developing Entrepreneurship in the UNECE Region

The former Yugoslav
Republic of 8/6/2000 29/11/2002 28/7/1999 28/7/1999 not signatory 18/08/2005 not ratified 12/12/2000 12/01/2005
Macedonia
Montenegro 7/4/2005 not ratified Accession 18/12/2002 a not signatory succession 23/10/2006 b succession 23/10/2006 b
Romania 4/11/1999 23/4/2002 27/1/1999 11/7/2002 not signatory 9/12/2003 2/11/2004 14/12/2000 4/12/2002
Serbia 7/4/2005 not ratified Accession 18/12/2002 a not signatory 11/12/2003 20/12/2005 12/12/2000 6/09/2001
Commonwealth of Independent States,
of which:
Armenia 17/2/2004 7/1/2005 15/5/2003 9/1/2006 not signatory 19/05/2005 8/03/2007 15/11/2001 1/07/2003
Azerbaijan 21/5/2003 11/2/2004 21/5/2003 11/2/2004 not signatory 27/02/2004 1/11/2005 12/12/2000 30/10/2003
Belarus not signatory not signatory not signatory not signatory not signatory 28/04/2004 17/02/2005 14/12/2000 25/06/2003
Georgia 4/11/1999 22/5/2003 27/1/1999 not ratified not signatory not signatory not signatory 13/12/2000 5/09/2006
Kazakhstan not signatory not signatory not signatory not signatory not signatory not signatory not signatory 13/12/2000 not ratified
Kyrgyzstan not signatory not signatory not signatory not signatory not signatory 10/12/2003 16/09/2005 13/12/2000 2/10/2003
Rep. of Moldova 4/11/1999 17/3/2004 24/6/1999 14/1/2004 not signatory 28/09/2004 not ratified 14/12/2000 16/09/2005
Russian Federation not signatory not signatory 27/1/1999 4/10/2006 not signatory 9/12/2003 9/05/2006 12/12/2000 26/05/2004
Tajikistan not signatory not signatory not signatory not signatory not signatory accession 25/09/2005 a 12/12/2000 8/07/2002
Turkmenistan not signatory not signatory not signatory not signatory not signatory accession 28/03/2005 a accession 28/03/2005 a
Ukraine 4/11/1999 19/9/2005 27/1/1999 not ratified not signatory 11/12/2003 not ratified 12/12/2000 21/05/2004
Uzbekistan not signatory not signatory not signatory not signatory not signatory not signatory not signatory 13/12/2000 9/12/2003
Source: Council of Europe Civil Law Convention on Corruption: http://conventions.coe.int/Treaty/Commun/QueVoulezVous.asp?NT=174&CM=7&DF=5/19/2007&CL=ENG

Council of Europe Criminal Law Convention on Corruption: http://conventions.coe.int/Treaty/Commun/QueVoulezVous.asp?NT=173&CM=7&DF=5/19/2007&CL=ENG
OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions: http://www.oecd.org/document/21/0,2340,en_2649_34859_2017813_1_1_1_1,00.html
United Nations Convention against Corruption: http://www.unodc.org/unodc/crime_signatures_corruption.html
United Nations Convention against Transnational Organized Crime: http://www.unodc.org/unodc/en/crime_cicp_signatures_convention.html
a: accession and b: succession
__________________________________________________________________________________________
To summarize, recent years have borne witness to intensified government action

against corruption. However, its effect on enterprise development is still not easy to quantify.
While longer time series are not available, the limited data for 2002-2006 from the EBRD-
World Bank Survey and from Transparency International attest to a certain improvement in
the corruption situation in the new EU members in the first place, while in the countries of
Eastern Europe, Caucasus, Central Asia and South-East Europe progress seems to have been
less significant.
In this context, the International Conference recommended to central and local

Governments to implement systemic measures aimed at improving public governance, and
alleviating corruption and unofficial payments by enterprises. Strengthened independence of
judges, enforcement of taxation rules penalizing illicit payments, the establishment of anti-
corruption public-private advisory bodies and enhanced accountability of civil servants should
serve the interests of emerging entrepreneurs and enterprises. At the same time, the
Conference recommended to encourage business operators to embrace and enact the ten
principles spelled out by the United Nations Global Compact.
F. Raising Awareness of Gender-Specific Obstacles and Helping Women Entrepreneurs
Women are often viewed as a largely untapped reservoir of potential entrepreneurs.

Activating their potential for entrepreneurship and self-employment also has important
implications for their status in society and their quality of life. The barriers to women
entrepreneurship form a part of broader gender-related barriers related to social stereotypes
and the position of women in society. Therefore, addressing the barriers faced by women
entrepreneurs is linked to reforming institutions, adjusting social polices and attitudes towards
women’s role in society. 62
The 2002 Global Entrepreneurship Monitor Executive Report found that men were
more likely than women to start a new enterprise. The Total Entrepreneurial Activity
Indicator for men was 50 per cent higher. 63 Consequently, on average 13.9 per cent of men
become entrepreneurs compared with 8.9 per cent of women. 64 This significant gender gap
exists for both early stage entrepreneurial participation and established business operations;
and it tends to be the widest in the high-income country group, regardless of the type of
activity.
A number of factors are often presumed to contribute to the relatively low rates of
women entrepreneurs. Among those are the cultural stigmas associated with gender roles and
property ownership; the perceived lower risk tolerance among women; insufficient experience
in business operation and entrepreneurial training, inadequate access to finance as well as to
62
UNECE, “Access to financing and ICT for women entrepreneurs in the UNECE region”, Geneva and New York, 2004.
63
The Total Entrepreneurial Activity indicator measures the percentage of individuals in the labour force who are either
actively involved in starting a new business, or who own or manage an enterprise that has been established less than 42
months ago.
64
Minniti, M. and Arenius, O., “Women in Entrepreneurship”, The Entrepreneurial Advantage of Nations: First Annual
Global Entrepreneurship Symposium, 2003.
__________________________________________________________________________________________
information and peer networks, and a competing demand for time related to family
responsibilities. 65
Impeded access to finance and excessive collateral requirements often represent one of
the most serious handicaps to women’s entrepreneurship.66 A 2000 paper found that women
used the starting capital worth only one third of that invested by male entrepreneurs,
irrespective of economic sector. The same research discovered that at the initial stages of
enterprise development female entrepreneurs tended to rely more than men on family savings,
household income, inheritance, grants and friends as sources of business finance. Women’s
personal savings constituted between 80 and 99 per cent of initial female-owned company
capitalization while in the case of men-owned companies the respective percentage was
between 30 and 59 per cent. It was also found that at subsequent stages of enterprise operation
female-owned companies faced more difficulties in getting access to the finance. This fact is
largely explained by difficulties of penetrating informal financial networks dominated by
men. 67
Enterprises owned by men also are often more profitable than those owned by women.
According to the United States Centre for Women’s Business Research, nearly 10.4 million
firms are owned by women. Yet, only 3 per cent of firms owned by women have revenues of
USD 1 million or more compared with 6 per cent of those owned by men. The U.S. Census
data show that as much as 46 per cent of women-owned businesses are tiny enterprises with
revenues of less than USD 10,000 per year, as compared with 30 per cent of men-owned
businesses. Fewer than 4 per cent of women-owned businesses have revenues of USD
500,000 or more per year against 11 per cent of businesses owned by men. 68
Governments address the problem of availability of financial resources through special

programmes targeting women-entrepreneurs. In Finland, for instance a micro-credit
programme benefiting women-entrepreneurs has been operational since 1997. The State-
owned specialized financing company “Finnvera plc” grants loans to enterprises employing
maximum 5 people and having women as the majority of its owners (over 50%). The amounts
of loan can vary between EUR 3,000 and 35,000, enabling the entrepreneur to start a small
business, to develop the operations and to make investments in situations where the available
collateral is not available or insufficient. In Bulgaria, in 2005 as many as 545 unemployed
women started their own business with direct financial support from the Government. 69
International experience and good practices have shown that incorporating gender
issues into government policies is becoming more common. In an effort to encourage more
women into entrepreneurial activity, regulatory incentives have been a key strategy. The
United States Government, for example, has implemented a number of initiatives including a
target to award at least 5 per cent of all Government contracts to women-owned small
65
OECD, “Women’s Entrepreneurship: Issues and Policies”, 2nd OECD Conference of Ministers Responsible for SMEs,
2004.
66
Carter, S. and Cannon, T., “Women as Entrepreneurs”, London: Academic Press, 1992.
67
Shaw, E., Carter, S., and Brierton, J., “Unequal entrepreneurs – why female enterprise is an uphill business”, Policy Paper
for the Industrial Society, 2001.
68
Women Partner International, “Woman’s Media Desk”, 2007. http://www.ivwcc.org
69
OECD, “Women’s Entrepreneurship: Issues and Policies”, 2nd OECD Conference of Ministers Responsible for SMEs,
2004.
__________________________________________________________________________________________
business enterprises, and some agencies have exceeded the 5 per cent target. The migration of
women to entrepreneurship is also fostered through fiscal incentives applied to retirement
contributions. 70
The Finnish “Ladies Business School” programme, which started in 1987, provides
training programmes for female executives and key employees in SMEs. Organized by the
Ministry of Trade and Industry and financially supported by the EU, the courses have targeted
women entrepreneurs and would-be women entrepreneurs, and have been implemented
through Employment and Economic Development Centres. Group mentoring projects have
involved over 100 women entrepreneurs coaching the target audience in 5 areas of Finland. 71
In 2007, the United Kingdom Ministry of Industry and Regions started a new support
programme for women graduates endeavouring starting a business. The programme includes a
three-day residential business readiness course, one-to-one mentor support and access to
dedicated online support.72
In the United States, the Department of Commerce has launched a new Global
Diversity Initiative, aimed at encouraging export efforts of women and minority
entrepreneurs. The same Department has also recently initiated a US outreach tour to train
women-owned business enterprises on issues related to international trade. 73
Governments also endeavour to raise the awareness of the potential and benefits of
women’s entrepreneurship. In Belgium, for example, the Flemish Government jointly with the
European Social Fund has financed a television programme highlighting the activities of
several highly-educated female entrepreneurs. 74 The Royal Bank of Canada (RBC) offers
training sessions, publications and other services to women business owners across Canada
and sponsors the RBC Canadian Women Entrepreneur Awards.
A number of initiatives promoting women’s entrepreneurship originate from NGOs,

often working in partnerships with Governments and international organizations. As a means
for supporting women entrepreneurs, particularly in networking and supply markets, Canada’s
governmental Atlantic Canada Opportunities Agency (ACOA) funds non-profit business
organizations under the Women in Business Initiative (WBI) to offer women business owners
the resources they need to expand their enterprises and strengthen their competitiveness. The
Agency also aims at improving business advisory services, develop business networks, and
assist in enhancing innovation and export capacity.
The Ch.A.S.E project (Chambers against Stereotypes in Employment), launched in

2005 and led by the Association of European Chambers of Commerce and Industry
(Eurochambres), aims at identifying existing cultural prejudices and societal stereotypes that
prevent girls and women from freely accessing the professions or employment sectors which
correspond best to their aspirations. It also aims at developing practical tools that will enable
70
Sannikova, E., “Regulatory Impediments to Enterprise Development: Mobilizing Women’s Economic Potential”, Paper
presented at the UNECE International Conference on Reducing Barriers to Entrepreneurship and Encouraging Enterprise
Development: Policy Options, Geneva, 18–19 June 2007.
71
European Network to Promote Women’s Entrepreneurship, Activities Report 2005, September 2006.
72
Ibid.
73
OECD, “SME and Entrepreneurship Outlook”, 2005.
74
European Network to Promote Women’s Entrepreneurship, Activities Report 2005, September 2006.
__________________________________________________________________________________________
the Chamber network to successfully promote the role of women and especially female
entrepreneurs in all business sectors. As a first part, the project partners carried out a survey in
their countries/regions, interviewing female entrepreneurs in male dominated sectors and
female managers in traditionally male-dominated jobs. The purpose of the survey was to
ascertain the profile of these women, their business environment, possible stereotypes, and
suggestions for improving the situation. In response to this initial step, the project “Woman in
Business” developed a “Talent Check” which is available in several languages and helps girls
to develop their own interests and to learn more about jobs. The project also develops role
models that are targeting school girls and students, as well as women entrepreneurs and
employees at the European level. 75
The UNECE International Conference on Reducing Barriers to Entrepreneurship

recommended that central and local Governments should seek to redress the imbalance with
regard to communities underrepresented in the enterprise economy – particularly women and
ethnic minorities. The enterprise development policies should be gender-sensitive. It also
recommended that Governments should target women in their SME policies and allocate
resources to create “focal points” for women entrepreneurship development. These should
both assist women interested in becoming entrepreneurs and address the related social issues
that currently constrain their motivation.
G. Alleviating Psychological and Cultural Barriers
Regional diversity in the scope of enterprise development suggests an important role

of cultural and related psychological factors. Culture reflects ethnic, social, economic,
ecological, and political peculiarities imbedded within individuals producing attitude
variations across different societies. Cultural differences make individuals from different
countries and strata of society react to entrepreneurial opportunities and barriers differently. 76
Although “cultural attitude” is difficult to quantify, the existing literature measures it in terms
of power distance, propensities to individualistic and collectivistic behaviour, trust in
institutions, perception of uncertainly and risk, and of economic security, and status of
entrepreneurial occupation in society. 77
In very general terms, the existing theory assumes that high degrees of individualism,
trust in institutions, risk acceptance, good prospects for economic security and well being, and
positive perceptions of entrepreneurs’ societal position augment entrepreneurial motivation.
As an example, individual attitudes in the United States are often recognized as both highly
individualistic and entrepreneurial. In contrast, the collectivistic culture imposed on
individuals in the former socialist economies gave little room to entrepreneurial attitudes and
coupled with risk-aversion and a tradition of a patronizing State is likely to hinder
entrepreneurial motivation. 78
75
Ibid.
76
OECD, “Promoting Entrepreneurship in South Eastern Europe; Policies and Tools”, …., Iss. 12.
77
Lindsay, Noel J., “Toward a Cultural Model of Indigenous Entrepreneurial Attitude”, Academy of Marketing Science
Review, Vol.2005.
78
OECD, “Promoting Entrepreneurship in South Eastern Europe: Policies and Tools...”.
__________________________________________________________________________________________
Along the same lines, in societies that have suffered from high levels of corruption,
the degree of trust in the legal, political and economic institutions is relatively low. This
results in high perceptions of entrepreneurial risks. In some of the formerly planned
economies, the methods of privatization, which were largely perceived as unfair, have
reinforced the sense of mistrust in government action that often continues to affect the
entrepreneurial climate. 79
In addition, the value attributed to economic security in countries where historically

the State has performed the role of both employer and social safety net (e.g. in countries of the
former Soviet Union) has been presumed to be a major barrier to entrepreneurship. In the
same way, as compared with countries with different economic and political traditions, the
fear of risk-taking and of business failure impedes entrepreneurial motivation.
Therefore, government agencies and other stakeholders, dealing with the issue of
reducing barriers to enterprise development, aim at gradually changing the entrenched cultural
perceptions and attitudes hindering entrepreneurial motivation. The objective is to strengthen
the sense of responsibility for one’s own well-being, raise the risk tolerance and develop trust
in government institutions, in particular those supporting enterprise development. Equally
important is to restore the status of entrepreneurs in society and develop mechanisms aimed at
motivating and stimulating individuals to become entrepreneurs.
Motivating and training young future entrepreneurs are the objectives of a number of
institutions throughout the region. For example, the worldwide Junior Achievement − Young
Enterprise organization, supported by the European Commission, has created a European
network that functions at national and local levels. This organization, enjoying both public
and private sector support, targets the cultural perceptions of upcoming generations, and
develops programmes aimed at initiating young people into the major issues of
entrepreneurship and enterprise operation.
The network focuses on providing business training and services, as well as some
basic information related to starting and running a business, good practices and stories of
successful undertakings. Surveys conducted in 2005 among students in countries where the
programme was implemented attested to a certain effectiveness of the programme. In
particular, as many as 90 per cent of students surveyed in the Republic of Moldova, Serbia
and Montenegro, and the former Yugoslav Republic of Macedonia saw it as prestigious to set
up one’s own business. 80
To the same end, business incubators and clusters work towards changing the societal
attitudes towards entrepreneurs. For example, the “EXIST − University-based start-ups”, a
programme initiated by the German Federal Ministry of Economics and Technology, aims to
improve the start-up climate at universities and increase the number of start-ups originating in
German academic institutions. Models to motivate, train and support entrepreneurial
79
Anttonen, N., Tuunanen, M., Alon, I., Academy of Marketing Science Review, “The International Environments of
Franchising in Russia”, 2005, Vol.2005, p.1.
80
OECD. “Promoting Entrepreneurship in South Eastern Europe; Policies and Tools…”
__________________________________________________________________________________________
personalities have been created and implemented through regional networks in which
universities work together with partners from academia, industry and local authorities. 81
In a number of emerging market countries of South-East Europe such as Croatia, the

former Yugoslav Republic of Macedonia, Serbia, Bosnia and Herzegovina, capacity-building
programmes target young people at the secondary school level through organizing practice-
oriented mini-enterprises.
In the private sector, companies also develop programmes encouraging young people
to start a business. Working through local enterprise development organizations and
partnerships with schools, universities, governments, other corporations and community
programmes, the LiveWIRE initiative of Shell, for example, delivers practical support to
would-be entrepreneurs in developing skills needed to plan, launch and manage new business
ventures. 82
Reducing cultural and psychological barriers to entrepreneurship remains a long-term

objective for many emerging market economies. Its results will gradually materialize in the
changed perceptions of entrepreneurship in the society and will benefit most the younger
generations to come.
81
EFMD. EntreNews. Issue 2. 2004
www.efmd.org/attachments/tmpl_1_art_050222usmw_att_050222ztsp.pdf
82
Ibid
__________________________________________________________________________________________
III. CONCLUSIONS AND RECOMMENDATIONS

OF THE UNECE INTERNATIONAL CONFERENCE
“Reducing Barriers to Entrepreneurship and Encouraging Enterprise Development:
Policy Options”
(18-19 June 2007, United Nations, Geneva, Switzerland)
CONCLUSIONS
1. At the present stage of development of emerging market (transition) economies, the

emergence of new enterprises and advance of entrepreneurship increasingly promote national
competitiveness, through enhanced innovation, new products and services marketed and
better employment opportunities. The experience accumulated in developed market and
emerging market economies shows that the main preconditions for unhampered enterprise
development are:
(a) General settings for a market economy, political will of Governments to foster
entrepreneurship, the rule of law in general, and the stability of property rights and
consistent anti-corruption policies; in particular, business-friendly tax regime and
labour-market regulations;
(b) Favourable regulatory and institutional conditions governing the development of

enterprises, which include conditions for enterprise entry and exit from the market,
as well as conditions for their operation and competition;
(c) Strong capacity of innovating enterprises to translate the results of R&D into
commercial products;
(d) Well-functioning financial markets and uninhibited access of entrepreneurs to the

finance required to start and operate an enterprise;
(e) Adequate education and training, including the opportunities for training of would-
be and operating entrepreneurs;
(f) Favourable attitude towards entrepreneurship in the society, including that towards
women’s and youth entrepreneurship; and
(g) Proper conditions for cross-border expansion of enterprises.
2. International surveys show that the inefficiency of governance (government

bureaucracy and corruption), taxation issues (taxation regulations and taxation rates),
inadequate access to finance and skills shortages are among the major impediments to
enterprise development. At the same time, shortage of working capital, inadequate
information on business opportunities and markets abroad, and lack of communication with
potential overseas customers represent serious obstacles to SME expansion in the
international markets. Governments in emerging market countries have designed policies
__________________________________________________________________________________________
aimed at facilitating the establishment and operation of enterprises, alleviating their tax
burden, improving their access to financing and promoting their cross-border operations.
3. Over the last few years, the emerging market economies across the region have made
progress in simplifying and reducing the procedures associated with establishing an
enterprise, and this obviously resulted in a decrease in the number of days required to
establish a company. The same applies to the cost of starting a business, including the
minimal capital requirements, which have also decreased. Importantly, several Governments
have streamlined the system of controlling operational enterprises. However, the
administrative procedures related to setting up a company in emerging market economies
remain numerous and complex. The time needed for entrepreneurs to comply with these
procedures, as well as the relative costs involved, are generally still higher than in the
developed market economies.
4. Emerging market countries in the region have been trying to simplify their tax
systems, and reduce the number of taxes and effective tax burden on SMEs. As a result,
according to the surveys, in the new EU member States this burden seems to have been
significantly alleviated, while the picture is more heterogeneous in the other emerging market
countries.
5. Access of start-ups and SMEs to external sources of finance in the emerging market
economies of the region has become easier. It nonetheless still remains a source of concern
for entrepreneurs in Eastern Europe, Caucasus, and Central Asia (EECCA) and South-East
Europe.
6. Recently across the region, Governments in cooperation with the private sector have
been making efforts to strengthen public governance and reduce the scope for corruption
associated with business operation and the scale of shadow economy. They are doing so
through reforming the judicial systems and the tax regimes, through establishing special
public-private anti-corruption consultative bodies and strengthening the accountability of civil
servants. The limited data available attest to an improvement of corruption perceptions in
emerging market countries, progress being particularly tangible in the new EU member
States.
7. While the proportion of enterprises operated by women entrepreneurs in emerging

market economies has grown recently, persisting gender barriers inhibit their access to
resources, and to financing, in particular.
8. For successful enterprise development, it is crucial that the major stakeholders

cooperate closely: i.e. central and local Governments, operational and would-be
entrepreneurs, enterprise associations and training centres for entrepreneurs. Cooperation with
the interested partners provides Governments with essential feedback, helping them to
establish a regulatory and institutional environment that should create incentives for
entrepreneurship, thus encouraging technological change and promoting local economic
development.
__________________________________________________________________________________________
RECOMMENDATIONS
(a) To central and local Governments
1. Consistently implement measures aimed at facilitating enterprise establishment, giving

consideration to the recommendations of the World Bank and the European Commission, in
particular to the recommendations to use the “single window” technology to register start-ups,
employ standardized forms, enable online registration, introduce the “silence is consent” rule
and keep administrative costs of registration low.
2. Simplify the procedures governing operational enterprises, in particular reduce the

number of required permits and licences and increase their validity terms, improve
coordination among various supervisory agencies and reduce the overall number of
inspections born by enterprises.
3. Continue aligning the taxation policy to the needs of enterprises, especially the SMEs,
and, in particular, simplify the taxation procedures, reduce the number of tax payments and
improve the tax administration for enterprises. Where appropriate, namely with respect to
innovating SMEs, consider implementing targeted measures of tax incentives.
4. In consultation with banking institutions, design measures facilitating access of SMEs

to bank finance, in particular to special credit schemes for long-term investment financing,
including prolonged grace periods, loan guarantees provided via public-private SME-focused
programmes, and more favourable collateral acceptance rules. Drawing on assistance from
international financial institutions, develop alternative forms of funding for start-ups and
SMEs, in particular financing from specialized public-private funds, leasing, micro-financing
and the like. Support the “investment readiness” of enterprises through training and other
awareness-raising initiatives that enhance their ability to attract finance.
5. Implement systemic measures aimed at improving public governance and alleviating

corruption and unofficial payments by enterprises. Strengthened independence of judges,
enforcement of taxation rules penalizing illicit payments, the establishment of anti-corruption
public-private advisory bodies and enhanced accountability of civil servants should serve the
interests of emerging entrepreneurs and enterprise operation. Encourage business operators to
embrace and enact nine principles spelled out by the United Nations Global Compact.
6. In order to reduce barriers to SME expansion abroad, in line with the OECD
recommendations, create mechanisms that facilitate the participation of SMEs in the trade
policy process, assist exporting enterprises in diagnosing and understanding the business
environment they face in host countries, and design programmes that help firms to overcome
trade barriers.
7. Address cultural barriers to enterprise growth through a series of measures designed to

encourage and stimulate entrepreneurial spirit, particularly among young people, and help
them understand the opportunities offered by entrepreneurship.
__________________________________________________________________________________________
8. Seek to redress the imbalance with regard to communities underrepresented in the

enterprise economy – particularly women and ethnic minorities. The enterprise development
policies should be gender-sensitive.
9. Collect and disseminate information on good practices in reducing barriers to

entrepreneurship and enterprise development in developed market and emerging market
economies; on this basis, and in cooperation with interested private companies and
entrepreneurs’ associations, local governments should initiate training courses for government
officials, company managers and would-be entrepreneurs.
10. Use public-private cooperation when designing and implementing enterprise

development policy at central and local levels. Facilitate the participation of SMEs in public-
private consultations on this subject and take into account their particular needs. In
cooperation with entrepreneurs’ associations, establish mechanisms for monitoring the
implementation of enterprise-development policies.
11. In the development of policy and legislation for enterprise development, adopt the
principle of “Think Small First” to ensure that their impact on SMEs is considered proactively
during the decision-making process.
(b) To UNECE and its secretariat
12. The UNECE secretariat is invited to summarize the good practices presented and
discussed at the Conference, as well as its recommendations, in the three working languages
of UNECE as speedily as possible and to distribute the outcome of the Conference to member
Governments, the private sector and academic institutions interested in this subject.
13. UNECE should focus its future work in the area of enterprise and entrepreneurship
development in the following areas:
(a) Government support to innovative start-ups and SMEs; analysis and

dissemination of good practices in creating enabling environment for clustering,
subcontracting and participation of SMEs in international value-chains;
(b) Ways and means of facilitating the access of innovative SMEs to financing,
including through venture and guarantee funds;
(c) Public-private cooperation in promoting the cross-border expansion of SMEs.

__________________________________________________________________________________________
SELECTED BIBLIOGRAPHY
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delivery", 2006.
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September 2006.
FIAS, “The Investment Climate Advisory Service”, 2006 Annual Report.
Fleiss, B., “External Impediments to SME Access to International Markets: What are they
and how can they be reduced?”, Paper presented at the UNECE International Conference on
Reducing Barriers to Entrepreneurship and Encouraging Enterprise Development: Policy
Options, Geneva, 18–19 June 2007.
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Presidency, 10-11 September 2004.
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Belarus”, 2005.
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MBeng23.pdf
IFC, Business Environment in Georgia, “Annual survey of the business environment in

Georgia”, 2004.
IFC, Business Environment in Uzbekistan, “Annual Survey of the business environment in

Uzbekistan”, 2004.
__________________________________________________________________________________________
http://www.ifc.org/ifcext/uzbeksme.nsf/AttachmentsByTitle/SME_chapters_2005_eng/$FILE
/SME_chapters_2005_eng.pdf
IFC, Business Environment in Ukraine, “Annual survey of the business environment in

Ukraine”, 2005.
IFC, “IFC Launches Central Asia Leasing Facility’s Swiss funded Technical Assistance”,
January 2006.
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7267D852570EC005540A1
IFC, “Leasing in Central Asia - A snapshot of the leasing market in Central Asia”, 2005.
Innovating Regions in Europe, “Regional clustering and networking as innovation drivers”,

Learning Module 3, 2005.
IPM Research Centre, “Small and Medium Business in Belarus; Quarterly Review”, 2006,
1Q.
IPM Research Centre, “Small and Medium Business in Belarus; Quarterly Review”, 2008.
1Q.
Jacobs, S., Coolidge, J., “Reducing Administrative Barriers to Investment; Lessons Learned”,
FIAS, 2006.
Johnson, S., Kaufmann, D., McMillan, J., Woodruff, C., “Why do firms hide? Bribes and
unofficial activity after communism”, 2000, Elsevier, vol.76(3).
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Lindsay, N.J., “Toward a Cultural Model of Indigenous Entrepreneurial Attitude”, Academy

of Marketing Science Review, Vol.2005.
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Entrepreneurs in Transition Economies”, 2002, vol.16, No.3.
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Nations: First Annual Global Entrepreneurship Symposium, 2003.
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Business Climate”. Paper presented at the UNECE International Conference on Reducing
Barriers to Entrepreneurship and Encouraging Enterprise Development: Policy Options,
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__________________________________________________________________________________________
OECD, “Fostering Entrepreneurship”, 1998.
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OECD, “SME and Entrepreneurship Outlook”, 2005.
OECD, “The SME Financing Gap: Theory and Evidence”, 2006.
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Ministers Responsible for SMEs, 2004.
Official Website of the Yaroslavl Region.

www.adm.yar.ru/a_center/admref/doky/ukaz_797.htm
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Economic Potential”, Paper presented at the UNECE International Conference on Reducing
Barriers to Entrepreneurship and Encouraging Enterprise Development: Policy Options,
Geneva, 18–19 June 2007.
Shaw, E., Carter, S., Brierton, J., "Unequal entrepreneurs – why female enterprise is an uphill
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2004”, Analytical Paper, Moscow 2006.
Transparency International, Global Corruption Report, 2006.
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International Conference on Reducing Barriers to Entrepreneurship and Encouraging
Enterprise Development: Policy Options, Geneva, 18-19 June 2007.
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Challenges”. Paper presented at the UNECE International Conference on “Reducing Barriers
to Entrepreneurship and Encouraging Enterprise Development: Policy Options”, Geneva, 18-
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www.doingbusiness.org/MethodologySurveys/StartingBusiness.aspx
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http://www.doingbusiness.org/documents/EconomyProfile-COMESA.pdf
__________________________________________________________________________________________
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__________________________________________________________________________________________
ANNEX
Notes to Tables: Selected Indicators Measuring the Impediments to

Entrepreneurship in UNECE Countries
Table 1 presents the rankings of the “most problematic factors in doing business”, as
perceived by local executives surveyed by the World Economic Forum in 2004 in 125
countries. The ranking of ‘1’ corresponds to the “most problematic” factor of the total of 14
factors identified, while the ranking of ‘14’ – to the least problematic.
Table 2 presents the results of the enterprise survey conducted in 2005 in Belarus. The
participants identified major obstacles to business development in that country ranking them
from 1 (least important) to 5 (most important).
Tables 3 (a) and 3 (b) present the selected results of the World Bank survey of major
impediments to entrepreneurship conducted in 2003–2008 in 175 countries. The indicators
relate to the administrative procedures associated with starting an enterprise and the cost
incurred by the entrepreneurs in terms of time and money spent for registering and rendering
the enterprise operational.
The following are the assumptions regarding the companies to be established and operated.
These are limited liability companies registered in the most populated city of the country.
They are 100 per cent domestically owned and have 5 owners, none of whom is a legal entity.
They have a start-up capital of 10 times the per capita income in 2005, paid in cash. They are
engaged in general industrial activities, conduct no foreign trade operations and do not
produce products subject to a special tax regime (e.g. tobacco). Their production is not
associated with heavy pollution, and production sites and offices are leased. They do not
qualify for investment incentives or any special benefits. They employ up to 50 national
employees one month after starting up. They have a turnover of at least 100 times the per
capita income and the company deeds are 10 pages long.
Tables 4 (a) and 4 (b) present selected indicators of the business environment as they
influence the enterprise operation. These indicators come from the World Economic Forum’s
Executives Opinion Surveys 2005-2006 and 2006-2007. The first indicator measures the
impact of taxation on the incentives to work or invest, the score of ‘one’ corresponding to the
perception that taxation significantly limits the incentives to work or invest, and ‘seven’ to the
perception that taxation has little impact on the incentives to work or invest. The second
indicator attests to the perception of businessmen regarding the easiness of obtaining a bank
loan with a good business plan but without collateral. The score of ‘one’ corresponds to the
perception that this is impossible and ‘seven’ to the perception that it is easy. The third
indicator measures the availability of venture capital to entrepreneurs with innovative but
risky projects. The ranking of ‘one’ means that the venture capital is perceived as not
available and ‘seven’ that it is perceived as easily available. In addition to these three
indicators of the business environment contained in both tables, the Table 4(a) referring to
2005-2006 presents also the fourth and the fifth indicators measuring respectively the impact
of regulatory standards, that is, standards on product/service quality, energy, and other
regulations (outside environmental regulations), and the scale of the informal sector in a
__________________________________________________________________________________________
country. The fourth indicator’s ranking of ‘one’ attests to the laxity or non-existence of
regulatory standards as perceived by respondents and ‘seven’ to the perception that they are
among the world's most stringent. Finally, the fifth indicator’s ranking of ‘one’ corresponds to
the perception that all the economic activity is registered and ‘seven’ to the perception that
more that fifty per cent of it is unofficial or non-recorded. The indicators are calculated as
moving weighted averages for two years.
Table 5 (a) and 5 (b) present the results from the World Bank survey relating to the taxation
of medium-sized enterprises for 2005-2008. The “tax burden” incurred by medium-sized
enterprises in their 2nd year of operation comprises the number of tax payments, time spent to
comply with taxation requirements and the total tax rate as a percentage of profit. For 2006
and 2008, the total tax rate is further split into the profit tax rate, the rate of labour tax and
contributions and other tax rate.
Table 6 shows the share of bank loans in the total value of external funding of small and large
firms in selected developed economies in the second half of the 1990s. Firms with sales lower
than EUR 7 million are considered small firms, whereas firms with sales exceeding EUR 40
million are considered large.
Table 7 presents the results of Transparency International ratings (Corruption Perception

Index (CPI)), assessing the levels of corruption in selected emerging market economies of the
region. The CPI is based on seven international surveys of business people, political analysts
and the general public in 52 countries, and reflects their perceptions of corruption. The index
varies from 0 to 10, and the higher the index value the lower the perceived corruption.
Table 8 presents the status of ratification of major international conventions referring to

fighting corruption. The countries covered are the UNECE emerging market (transition)
economies.

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United Nations Economic Commission for Europe

Copyright © United Nations, 2008

All right reserved

Sales No. E.08.II.E.18

At advanced stages of transition to a market economy, entrepreneurship and enterprise

However, in countries with economies in transition (or “emerging market

OVERVIEW .......................................................................................................................... vii

I. “ENTREPRENEURSHIP”: Definition, Economic Potential and Drivers ............... 1

II. MAJOR OBSTACLES TO ENTERPRISE DEVELOPMENT,..................................

A. Reducing the Administrative Barriers ................................................................... 8

III. CONCLUSIONS AND RECOMMENDATIONS OF THE UNECE ..........................

SELECTED BIBLIOGRAPHY ............................................................................... 57

ACOA Atlantic Canada Opportunities Agency

In the emerging market economies 1 (“countries in transition”) of the region covered

In both developed and emerging market economies, entrepreneurs perceive major

Inefficient governance means administrative barriers such as burdensome

To deal with administrative barriers to entrepreneurship, countries of the region

According to surveys, companies consider taxation as one of the most important

The efforts of governments to ease the tax burden on enterprises in emerging

Access to finance is essential for conducting business operations. In many of the

The International Conference on Reducing Barriers to Entrepreneurship and

In today’s global economy, foreign expansion of enterprises is a prerequisite for

The barriers to women entrepreneurship form part of broader gender-related barriers

In both developed and emerging market economies, governments and other

Reducing cultural and psychological barriers to entrepreneurship remains a long-term

Entrepreneurship and enterprise development are increasingly recognized as a pillar of

Chapter I highlights the role and factors influencing the development of

Section E focuses on government effort to fight corruption in the context of enterprise

Explanatory notes to the tables have been consolidated in the annex.

I. “ENTREPRENEURSHIP”: Definition, Economic Potential and Drivers

“Entrepreneurship” can be defined as profit-oriented economic activities (and related

The development of entrepreneurship increases national wealth and benefits

Experts suggest a number of indicators to measure the scale or a particular aspect of

The scope of entrepreneurship development can be illustrated by the economic

The indicated unevenness of SME development across countries suggests a variety of

• Regulatory, institutional and cultural conditions, which include conditions for

• Levels of research and development, and technological potential of countries; capacity

• Development of financial markets and the level of sophistication of financial services;

• Degree of exposure to external competition of the economy in general and of its

• Cultural and psychological factors, which in particular influence the entrepreneurial

II. MAJOR OBSTACLES TO ENTERPRISE DEVELOPMENT,

Well-grounded policies aimed at reducing obstacles to enterprise development require

The joint EBRD-World Bank Business Environment and Enterprise Performance

Source: World Economic Forum (2004), Executive Opinion Survey.

National enterprise surveys largely confirm the findings by international

3 Too many inspections by government agencies 3.7

4 Difficulty of obtaining a licence 3.3

5 Registration and repeated registration of an enterprise 2.8

6 Corrupt officials 2.2

7 Crime in business operation 1.8

8 Inadequate protection of property rights 1.8

In summary, while the rankings in individual emerging market economies differ, in

Participants in the 2007 UNECE International Conference on Reducing Barriers to

A. Reducing the Administrative Barriers

Administrative barriers to entrepreneurship consist of cumbersome establishment

(a) Administrative procedures

In 2008, the number of procedures required for setting up an enterprise in emerging

Registering an enterprise can be a complex bureaucratic process, as can be seen from

• Labour/social security-related requirements, which include registering for accident and

• Environment preservation requirements, which include inspections from environmental

In contrast, in EECCA the number of procedures for starting an enterprise dropped

Country Number of procedures Duration (days)

Source: World Bank, http://www.doingbusiness.org/